Economy falls into recession in Q4 despite shrinking less sharply

Economy enters technical recession—again: Nationwide GDP dropped at a more moderate rate of 0.6% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter, above the upwardly revised 1.6% contraction tallied in the third quarter. Nonetheless, the print means that the economy entered into a technical recession for the second time in two years. Similarly, the mainland economy—which excludes petroleum activities and related ocean transport—swung to a 0.4% seasonally adjusted quarter-on-quarter contraction (Q3: +0.5% s.a. qoq). Q4’s result was the worst since Q2 2020 and markedly undershot both market and Norges Bank expectations of a slight increase.

Households and exports behind improved reading: The softer quarterly decline in nationwide GDP was due to better readings for private consumption and exports, the latter of which led to a better net trade result. Domestically, household spending stagnated in Q4, improving from the 0.1% decline recorded in Q3. However, government consumption growth halved to 0.3% in Q4 from Q3’s 0.6% rise. Similarly, fixed investment growth fell to 0.2% in Q4 (Q3: +1.6% s.a. qoq), marking the worst result since Q1 2024. Turning to the external front, exports of goods and services rebounded, growing 0.1% in Q4 (Q3: -3.2% s.a. qoq). Conversely, imports of goods and services deteriorated, contracting 0.7% in Q4 (Q3: +3.5% s.a. qoq), marking the worst reading in over a year. Looking at annual data, nationwide economic activity contracted a seasonally adjusted 0.2% in Q4, contrasting the previous quarter's 3.2% increase and marking the sharpest decrease since Q3 2023. Meanwhile, mainland annual GDP growth waned (Q4: +0.5% s.a. yoy; Q3: +0.8% s.a. yoy). Accordingly, nationwide GDP growth accelerated to 2.1% overall in 2024 (2023: +0.2%), while mainland GDP growth softened to 0.6% (2023: +1.1%), missing Norges Bank projections.

Recession to be short-lived: Our Consensus is for nationwide GDP to strongly rebound quarter on quarter in Q1, with the economy exiting technical recession; in Q2, growth should roughly halve and stabilize through Q4 2025. Our panelists also see mainland GDP returning to growth in Q1. Overall in 2025, private consumption will be aided by a continued recovery in purchasing power as wage growth outpaces inflation again, while fixed investment will be supported by a less restrictive monetary policy backdrop. However, the improvement in domestic demand should lead to import growth outpacing that of exports, which will limit the contribution of the external sector to overall GDP growth.

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