Norway’s growth outlook impacted by Russia-Ukraine war

The fallout from the Russia-Ukraine conflict and a brief but sharp hit from the Omicron outbreak have prompted us to cut our 2022 mainland GDP growth forecast by 0.7ppts to 3.6%. While government subsidies for household electricity bills are containing energy price rises, the stark strengthening of underlying price pressures has led us to expect the strongest year for inflation since 1989, which is weighing on the consumption outlook.

What you will learn:

• With renewables comprising the bulk of the energy mix, higher oil and gas prices should not directly disrupt industrial prospects this year.
• Inflation rose to 3.7% y/y in February. The government’s subsidy scheme for household electricity bills has caused headline inflation to moderate significantly from the 5.3% reading in December.
• At its March meeting, Norges Bank hiked the policy rate by 25bps to 0.75% and pencilled in four rate hikes both this year and next.