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Interest rates and inflation slow Norway's economy

Frazer Norwell
Frazer Norwell - [email protected]
Interest rates and inflation slow Norway's economy
Norway's economy didn't grow during the second quarter. Pictured is the barcode district of Oslo. Photo by Nan Wisanmongkol on Unsplash

Norway's economy saw zero growth during the second quarter due to inflation and raising interest dampening consumers' demand.

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Weak development in several industries meant that Norway's economy didn't grow during the year's second quarter, figures released by Statistics Norway on Tuesday show.

Prior to the figures being released, Bloomberg had expected marginal growth of 0.1 percent, business news publication E24 reports.

Higher interest rates and inflation contributed to the slowdown in Norway's economy, according to Statistics Norway.

"Growth flattened out in the first half of 2023. Strong price growth and higher interest rates have reduced households' purchasing power, dampening demand. It causes a general cooling of the economy," Pål Sletten, head of national accounts at Statistics Norway, said.

In the first quarter of the year, the economy grew by 0.2 percent.

Kyrre M. Knudsen, chief economist at SR-Bank, told Norwegian newswire NTB that the economic figures were actually welcome.

"This is great news. This means that growth in the economy calms down, inflationary pressure decreases, and the interest rate can eventually be lowered - at the same time that we keep our jobs," the economist said.

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Building and construction activities had the largest negative contribution to the country's gross domestic product (GDP) in the 2nd quarter.

Sarah Midtgaard, a senior economist at Handelsbanken, said the figures likely signalled a further interest rate increase in September.

"GDP in the second quarter is somewhat weaker than Norges Bank assumed, but this speaks for a new interest rate hike in September," she told E24.

Norway's central bank has raised the interest rate 12 times since 2021 in order to try and bring down inflation by slowing the economy.

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