Norwegian Economy Contracts For First Time In 20 Years

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The Norwegian economy contracted in 2009 for the first time in 20 years, as all components of gross domestic product except government spending dropped compared to 2008.

The mainland-Norway GDP shrank 1.5% in 2009 after expanding 2.2% in 2008, the Statistics Norway said Thursday. The downturn in the mainland economy started in the third quarter of 2008 and continued throughout the first quarter of 2009.

The economy exited recession in the second quarter of 2009 by growing 0.1% sequentially. Growth accelerated to 0.3% in the third quarter, downwardly revised from the 0.5% rise reported initially. In the fourth quarter, mainland-GDP rose 0.3%, missing expectations for a 0.8% increase.

"Fourth quarter's disappointing GDP figures suggested that the Norwegian economy is still in a reasonably fragile state," said Ben May, European economist at Capital Economics. "The Norges Bank risks derailing the recovery if it raises interest rates too aggressively."

The Norges Bank was the first central bank in Europe to raise its key interest rate after the global economy showed signs of recovery from the financial crisis. The bank first increased the rate in October last year, followed by a second hike in December. In February, the central bank maintained its key policy rate at 1.75%.

Including oil and gas sectors, the Scandinavian economy contracted 1.5% in 2009, reversing a 1.8% growth in 2008. Growth eased to 0.1% in the fourth quarter from 0.5% in the third quarter.

Norway's exports fell 4.3% in 2009 following a 0.9% rise in 2008. During the same period, imports fell 9.7% after 2.2% rise. Households' final consumption expenditure dropped 0.1%, government spending rose 5.2% and investment declined 7.9%.

In a separate report, the statistical office said the Norwegian economy is likely to continue picking up, but no clear upswing is anticipated before the end of 2012. It forecasts Mainland-GDP to rise 2% this year and 2.7% in 2011. Unemployment in the country is set to rise this year and next. Inflation would be at 1.7% this year and 1.3% next year.

(Market News Provided by RTTNews)