Norway’s economy clocks third consecutive decline in Q1

Economy remains in a technical recession: The economy failed to escape the doldrums at the outset of 2025, with nationwide GDP shrinking 0.1% on a seasonally adjusted quarter-on-quarter basis in the first quarter. The reading marked the third consecutive decline, Norway’s first since records began in 1978, despite being less sharp than the downwardly revised 0.9% contraction tallied in the fourth quarter. Conversely, the mainland economy—which excludes petroleum activities and related ocean transport—rebounded by 1.0% in seasonally adjusted quarter-on-quarter terms (Q4 2024: -0.4% s.a. qoq). This result was the best since Q2 2022 and markedly outpaced both market and Norges Bank expectations. The statistical office attributed this upside surprise to unusually full water reservoirs boosting energy output. Looking at annual data, nationwide economic activity entered a technical recession, contracting a seasonally adjusted 0.7% in Q1 (Q4 2024: -0.2% yoy), the sharpest decrease since Q3 2023. Meanwhile, mainland annual GDP growth accelerated (Q1: +1.5% s.a. yoy; Q4 2024: +0.5% s.a. yoy).

Oil sector slump drives broad-based weakness: The quarterly decline in nationwide GDP reflected a contraction in the hydrocarbons sector, which accounts for nearly three-quarters of exports and drives fiscal policy due to its impact on Norway’s sovereign wealth fund. Against this backdrop, exports of goods and services fell 1.9% in the first quarter, deteriorating from the previous quarter’s 0.3% fall. Moreover, government spending growth eased to 0.4% in Q1 (Q4 2024: +0.5% qoq s.a.). In addition, fixed investment shrank 5.8% in Q1, contrasting Q4 2024’s 2.0% increase and marking the sharpest decline in a year: Oil investments swung into a double-digit contraction, though they tend to be volatile and, therefore, not entirely representative of the underlying health of the economy. More positively, private spending recovered, expanding 1.5% in Q1 after contracting 0.3% in the prior quarter; car purchases shot up in anticipation of a tax hike on hybrid vehicles from 1 April, and household budgets were bolstered by healthy real wage growth. Meanwhile, a 2.1% fall in imports of goods and services—which contribute negatively to GDP—in Q1 (Q4 2024: -0.1% qoq s.a.) further capped the slowdown.

Economy’s recovery to be capped by rising protectionism: Our Consensus is for the economy to exit technical recession in Q2, and to then expand at a roughly stable pace in H2. Still, overall in 2025, economic growth should ease to around the 10-year pre-Covid average of 1.5% due to a sharp slowdown in exports amid rising global trade barriers and weaker oil demand. Some support will come from interest rate cuts and a continued recovery in purchasing power, with wage growth outpacing inflation again this year.

Panelist insight: Swedbank’s Kjetil Martinsen commented: “Norges Bank has delayed its first rate cut, and escalating trade wars could reduce investments and spending as uncertainty increases. Moreover, following two strong years, oil and gas investments are set to expand only moderately this year, while upside risks to government spending have eased as household purchasing power has improved. Taken together, we expect growth in the Norwegian economy to hover a little above 1.0% in the coming years.” Analysts at the EIU were more upbeat: “Despite headwinds facing the energy sector, we maintain our view that real GDP growth will be fairly solid in 2025, mainly owing to strong domestic demand dynamics. Inflation fell to 2.5% in April, and will continue stabilising over the year. This will support consumer real incomes, and thus consumer sentiment. […] A wealthy household sector, Norway’s limited direct exposure to US trade tensions and the country’s excellent [sovereign fund]-backed fiscal position, implies consumer sentiment will improve over the year.”

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