Since reaching a bottom, the Norwegian economy has grown in the second quarter of 2021. Higher vaccination uptake, lower spread of infection and loosening of infection control measures meant that economic activity gradually picked up. In each of the quarter's months there was growth, and in June 2021, GDP for mainland Norway was back at about the same level as February 2020, before the pandemic fully reached Norway.
- It is a milestone in the completely unusual period in which the Norwegian economy has found itself since March 2020, says Head of National Accounts, Pål Sletten.
The pressure from the pandemic eased during the quarter, and this facilitated the increase in activity. At the same time, the pandemic continued to affect the Norwegian economy.
Since March 2020, service industries such as accommodation and catering, transport and cultural services have been hit hard. Despite a sharp rise in the second quarter, activity in these industries remained low in June.
As consumption of services fell, consumption of goods increased during the pandemic. As a result, retail sales have remained high, and this increased further in May when the stores reopened. Consumer-oriented industry has also performed well, while manufacturing related to oil extraction has had a weaker development, partly due to problems related to access to foreign labour in April.
Employment increased in the second quarter but was still lower than before the pandemic. There was still a significant decline in the number of foreign workers in Norway.
Normally, the mainland economy grows by about one and three quarters of a percent a year. When GDP for mainland Norway after June 2021 is back at the same level as in February 2020, it means that the level is between two and two and a half percent lower than we could expect before the pandemic.
- The Norwegian economy was not in equilibrium at the end of the second quarter, but the imbalances were diminishing. Some of the changes we have seen are likely to be lasting shifts in the behaviour of individuals and companies. Other changes must be assumed to be reversed as the pandemic is brought under control, says section chief for the National Accounts, Pål Sletten.
The service industries return to growth after the reopening
As the rest of the economy is approaching normalcy, it is not a surprise that it is the service industries that are the source of much of the recovery in mainland activity. In total, the service industries grew 1.7 percent in the second quarter. The gross monthly product was at its highest in June since the pandemic occurred, only about 2 percent lower than in February 2020.
Manufacturing has had continuous quarterly growth since the sharp fall in the second quarter of last year. The rise continued in April, while in May and June there was a decline. In total, the activity level fell by 0.4 percent in the second quarter of 2021. The level in June was 0.7 percent lower than in February 2020. However, there are large differences between the various manufacturing industries. Consumer and export-oriented manufacturing grew further in the second quarter. Manufacturing connected to oil and gas extraction, which was already at a low level, however, had a further decline in the quarter and dragged down manufacturing as a whole.
The industry aggregate “other goods production,” which includes the primary industries, electricity production and construction, fell 0.7 percent in the second quarter. Despite special challenges associated with the shortage of seasonal workers, the agricultural industry did well. Traditional fishing grew in the quarter, while aquaculture declined despite growth of over 30 percent in June. Electricity production, on the other hand, had 2.9 percent growth from the previous quarter, with a particularly high level in April. Gross product in general government rose 1.2 percent in the second quarter of 2021, measured in constant prices. Central government growth grew by 1.7 percent. After reducing the gross product in the first quarter, the hospitals increased it in the second quarter as activity became more normalized. Activity in local government grew 0.7 percent in the second quarter.
The level of activity in the extractive industry was almost the same in the second quarter of 2021 compared with the first quarter of 2021. In June, oil production was lower than expected due to technical problems and maintenance stoppages in some fields. The price of oil and gas grew by about 10 percent in the first quarter, which raised GDP in current prices from 1.8 to 3.3 percent. Services related to recovery grew by only 0.8 percent in the second quarter.
Total GDP for Norway, including oil and gas extraction, pipeline transport and foreign shipping, increased 0.8 percent in June and 1.1 percent in the second quarter.
Growth in consumption
Total household consumption increased by 3.2 percent from the first to the second quarter, with particularly strong growth in May. Despite strong growth, consumption was still 3.8 percent lower in June 2021 than in February 2020.
The reopening of shopping centres and stores in a number of municipalities led to a strong growth in consumption of goods. Lower consumption of electricity, on the other hand, dampened the overall growth in consumption of goods, so that it ended at 3.6 percent in the second quarter. Consumption of goods is over 13 percent higher in June than before the pandemic occurred.
During the quarter, the national drinking ban at bars and restaurants was lifted and restaurants in Oslo and Viken were allowed to reopen. After two consecutive quarters with a sharp decline, consumption of accommodation and catering services grew by about 9 percent in the second quarter. Consumption of services had increasing growth throughout each month in the second quarter and grew by a total of 2.4 percent in the quarter. Nevertheless, service consumption was about 10 percent lower in June than before the corona outbreak.
Facilitation of travel abroad in June led to a doubling of household consumption abroad compared with the previous month. Nevertheless, Norwegians' consumption abroad was over 90 percent lower in June 2021 than in February 2020.
Consumption by the central government rose 1.3 percent in the second quarter; the hospitals contributed to this, together with increased activity at the universities and colleges. Consumption in local government grew by 2.5 percent in the second quarter after falling in the first quarter. The largest contribution to the growth came from increased activity in municipal health services in connection with vaccination, as well as testing and infection tracking. Total consumption in general government rose 1.9 percent in the second quarter.
Growth in investments driven by the public sector
Investments in mainland Norway grew 3.3 percent in the second quarter, effectively cancelling out the fall in the previous quarter. There was investment growth in the entire economy except for foreign shipping and “other goods production.” Public administration was the largest contributor to investment growth in mainland Norway.
Investments in the service industries grew by 3.0 percent in the second quarter and accounted for the majority of the growth in the mainland industries. This is partly due to the fact that investments in the retail trade increased by more than 10 percent. Investments in industry and mining grew 2.2 percent in the second quarter, thanks in part to the clean-up of mines on Svalbard, but also contributions from the food industry and production of rubber and plastic products. Investments in “other goods production,” on the other hand, fell by 4.5 percent in the second quarter of 2021, after growing in the previous quarter. A large fall in traditional fishing, where investments are volatile, accounted for much of this decline.
Measured in constant prices, investments by the public sector grew by 6.2 percent in the second quarter of 2021, after falling every quarter since the second quarter of last year. Investments in central government increased by 2.3 percent between the first and second quarters, with construction of new hospitals an important contributor. Investments were nevertheless lower than expected in the armed forces due to delays in combat aircraft deliveries.
Gross investment in local government rose 11.6 percent in the second quarter. Public administration, which includes roads, housing and public transport, increased investment. These investments usually vary somewhat from quarter to quarter.
At the beginning of the quarter, housing investment rose, but then fell in May. In June, there was growth again. Overall, housing investment rose 3.7 percent in the second quarter.
The extractive industries had a solid growth of 4.3 percent, driven by investments in platforms and rigs. Total investments, including foreign shipping and petroleum activities, grew by 2.8 percent.
Growth in exports and imports
Total exports at constant prices for the second quarter of 2021 are still slightly below the level from the beginning of last year but grew 3.9 percent from the previous quarter. Exports of crude oil and natural gas in particular had solid growth in the second quarter, at 8.9 percent. Exports of traditional goods declined in April and May but grew sharply in June. The second quarter thus ended with an overall growth of 0.5 percent for exports of traditional goods. Gasoline, civilian boats and electrical equipment boosted growth.
While exports of goods have recovered and are somewhat higher than the level before the pandemic, the opposite is true for services. After a sharp fall when the pandemic came to Norway, service exports enjoyed a steady growth until the first quarter of 2021. It has nevertheless far from recovered. It is especially the travel restrictions - but also other restrictions that hit the service industries hard. In the second quarter, there was again a decline in service exports of 1.5 percent.
Imports of goods and services show a total increase of 3.9 percent in the preliminary figures for the second quarter of 2021. It is mainly imports of fuel and cars and machinery in May that drive the development in the quarter. Imports of traditional goods helped to boost growth.
For a country with large petroleum exports like Norway, changes in current prices will often show a different picture than changes in volume. There has been a strong rise in oil and gas exports in the first half of the year. Seasonally adjusted export figures show a price increase of 48,5 percent in the first quarter, and a further 7 percent in the second quarter. Overall, seasonally adjusted exports grew at current prices by 9.1 percent in the second quarter.
Figures for the first half of 2021 show a positive net balance of goods and services abroad of NOK 134 billion. This is the highest goods and services balance for a half-year cycle since 2014. In addition to the already mentioned high oil and gas prices, travel restrictions since the beginning of 2020 have had a positive effect as Norwegians normally consume more travel traffic from abroad than correspondingly consumed by foreigners in Norway. Exports of general service trade have declined less than corresponding service imports.
Increased employment
In line with the general upturn in the economy, seasonally adjusted figures show growth in employed persons and hours worked by 0.4 and 0.6 percent, respectively, in the second quarter of 2021, compared with a decline for both in the first quarter.
Employment in the second quarter was boosted by health and care services and the retail trade, both of which grew by about 1 percent. The development in the retail trade is connected with the sharp rise that came when shops and shopping centers reopened. The industry also had a large increase in the number of hours worked, of 4.0 percent. In manufacturing, the number of employed persons grew by 0.7 percent in the second quarter, after falling in the first quarter.
Employment data from NAV (the Norwegian Labour and Welfare Administration) showed that the average number of layoffs in the second quarter was about 64,000, which corresponds to a decrease from the first quarter of more than 12 percent. Just over 43 percent of these were temporarily laid off, full time.
Revisions
In connection with the publishing of new monthly and quarterly figures, there will be recurring revisions. The statistics used will not normally change back in time, but seasonally adjusted series can still be affected. This is a consequence of the fact that the basis for seasonal adjustment changes when new periods are added.
The major upheavals in the Norwegian economy during the corona pandemic may have led to correlations between indicators and accounting variables being different than in normal periods. The quarterly figures in 2020 and 2021 must therefore be considered to be more uncertain than usual.
For a detailed discussion of the revisions, see the link to the pdf at the top of the article.
On Thursday 12 March 2020, the government introduced measures against the spread of the coronavirus in Norway. The seasonal adjustment during the corona crisis is made in such a way that figures from and including March are not included in the basis for calculating the seasonal pattern. Technically, in the seasonal adjustment routine, this is done by specifying March 2020 and subsequent months as extreme values. Statistics Norway's seasonal adjustment is in line with recommendations from Eurostat.
