Norway’s economy unexpectedly contracted in July as consumers spent less on goods, suggesting that households are already suffering from soaring inflation and rising borrowing costs.
(Bloomberg) — Norway’s economy unexpectedly contracted in July as consumers spent less on goods, suggesting that households are already suffering from soaring inflation and rising borrowing costs.
Mainland gross domestic product, which adjusts for the offshore industry, shrank 0.3% from June, the statistics office said on Thursday. Both the central bank and economists surveyed by Bloomberg had projected a 0.2% expansion.
The data adds evidence that the fossil-fuel rich Nordic economy is past its peak after having faced growing concerns about overheating. Even so, inflation that clearly exceeds the central bank’s forecasts and lower-than-expected unemployment still suggest Norges Bank will proceed with a half-point hike later this month.
“The momentum has weakened earlier than expected by Norges Bank,” Svenska Handelsbanken’s economist Marius Gonsholt Hov said in a note to clients. The weaker economic outlook “could at least cause Norges Bank to stop its hiking cycle at an earlier stage than signaled so far,” he added.
Household consumption fell by 1.6% in July due to “a broad decline in both goods and services consumption,” the statistics office said. It added the weaker domestic trade also cut value added and excise tax receipts.
“Growth has clearly been lower than Norges Bank expected in the June monetary policy report, but as this probably mostly is due to capacity constraints, it may not affect the rate decision on Sept. 22, even though uncertainty has risen,” Danske Bank’s analyst Frank Jullum said.
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