OSLO (Reuters) - The Norwegian economy contracted 1.9% in the first quarter, the biggest drop since the 2008 financial crisis, and will shrink even more in the second quarter after efforts to halt the novel coronavirus outbreak brought many industries to a halt.
The mainland economy, which excludes oil and gas production, shrank by 6.4% in March from February, Statistics Norway (SSB) said. Underlying data indicated the rate may have slowed by as much as 15% heading into April, it said.
“The standstill in the Norwegian economy due to the coronavirus pandemic is unprecedented. The current slump is likely to persist for several years to come,” SSB said after releasing the preliminary data.
Invoking emergency powers, the government on March 12 closed a wide range of public and private institutions, imposing the Nordic nation’s strongest-ever peacetime restrictions on civilians in order to stop the COVID-19 disease.
The agency predicted mainland GDP would fall by 5.5% in 2020 as domestic and foreign demand for goods and services declined, more than the 3.6% median prediction in a Reuters poll of economists released on Tuesday.
In 2021, the economy is forecast to grow by 4.7%, SSB said, while the Reuters poll predicted an expansion of 3.4%.
“The longer term outlook of the economy depends largely on when the restrictions are lifted; not just in Norway but also in the rest of the world,” economists at Nordea said.
“The Norwegian government has allowed for a gradual removal of the restrictions. In our main scenario, life is more or less back to normal at the onset of 2021.”
Underscoring the point, Norway’s consumer confidence fell in April to its weakest since monthly records began in 2007, dropping to a reading of minus 13.3 points from minus 10.4 in March and minus 2.6 in February, the Opinion AS agency said.
The coronavirus has also triggered a crash in the price of oil, Norway’s most important export. Crude output is not part of mainland GDP, but the industry’s resulting investment cuts will have a significant impact on the mainland economy.
Still, Norway’s $1 trillion sovereign wealth fund, around three times the value of annual GDP, puts the country in a unique position to spend its way out of the crisis.
“Norway is likely to see an economic recovery before our trading partners due to Norway’s greater scope for manoeuvre in fiscal and monetary policy and the depreciation of the crown against most currencies,” SSB said.
In 2022 and 2023 the economy will grow by an estimated 3.0% and 2.7% respectively, SSB predicted.
The central bank last month cut its key interest rate to the lowest on record and pumped money into banks, and the government will spend tens of billions of dollars to compensate for lost wages and prop up companies.
Norway’s crown weakened slightly on the news, trading at 11.5001 to the euro at 0838 GMT against 11.4492 just before the 0600 GMT release.
Editing by Larry King