By Terje Solsvik and Gwladys Fouche
OSLO (Reuters) – The Norwegian economy contracted 1.9% in the first quarter and could shrink more than 5% for the full year as efforts to halt the novel coronavirus outbreak brought many industries to a standstill, Statistics Norway (SSB) said on Friday.
The mainland economy, which excludes offshore oil and gas production, shrank by 1.9% in the January-March period from the final quarter of 2019, SSB said. The decline in March from February was 6.4%, it said.
Invoking emergency powers, the government on March 12 closed a wide range of public and private institutions, imposing the Nordic nation’s strongest-ever peacetime restrictions on civilians in order to stop the COVID-19 disease.
“The standstill in the Norwegian economy due to the coronavirus pandemic is unprecedented. The current slump is likely to persist for several years to come,” SSB said in a statement.
The agency predicted mainland GDP would fall by 5.5% in 2020 as domestic and foreign demand for goods and services declined, more than the 3.6% median prediction in a Reuters poll of economists released on Tuesday.
In 2021, the economy is forecast to grow by 4.7%, SSB said, while the Reuters poll predicted an expansion of 3.4%.
The coronavirus has also triggered a crash in the price of oil, Norway’s most important export. Crude output is not part of mainland GDP, but the industry’s resulting investment cuts will have a significant impact on the mainland economy.
Still, Norway’s $1 trillion sovereign wealth fund, around three times the value of annual GDP, puts the country in a unique position to spend its way out of the crisis.
“Norway is likely to see an economic recovery before our trading partners due to Norway’s greater scope for manoeuvre in fiscal and monetary policy and the depreciation of the crown against most currencies,” SSB said.
In 2022 and 2023 the economy will grow by an estimated 3.0% and 2.7% respectively, SSB predicted.
The central bank last month cut its key interest rate to the lowest on record and pumped money into banks, and the government will spend tens of billions of dollars to compensate for lost wages and prop up companies.
Norway’s crown weakened slightly on the news, trading at 11.479024 to the euro at 0632 GMT against 11.4492 just before the 0600 GMT release.
(Editing by Larry King)