- The USD/NOK pair declined after the government unleashed a $41 billion spending plan.
- Data from Statistics Norway showed that the country's mainland economy contracted by 2.1 per cent in Q1.
- The decline happened as more Norwegians stayed at home in response to the coronavirus pandemic.
The USD/NOK pair fell slightly even as data by Statistics Norway showed that the economy contracted in the first quarter. The decline was partly due to relatively stable crude oil price, with Brent rising by more than 1 per cent.
Norway GDP data
The Norwegian economy is facing the challenge of low oil prices and the coronavirus pandemic, which has killed more than 200 people.
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According to the statistics office, the mainland GDP contracted by a seasonally adjusted rate of 2.1 per cent in the first quarter. It dropped by 6.9 per cent from February to March. The mainland GDP excludes the important oil and gas industry.
In general, the country’s GDP contracted by 1.5 per cent in the first quarter after soaring by 1.5 per cent in the fourth quarter.
The bureau said that the accommodation and food service activities were the biggest contributors to the lagging growth. This sector declined by 37.8 per cent in the quarter as more people stayed at home. The next main laggards were arts and entertainment, transport, health and social work, and construction.
The best-performing sectors of the economy were manufacturing, professional and scientific activities and retail. This slowdown was expected since most businesses were shut in the final month of the quarter.
USD/NOK falls as household consumption declines
The Norwegian krone gained even after data showed a drop in consumption. Household consumption declined by 11.7 per cent in March. According to the bureau, this drop was mostly because of a sharp decline in the services sector, which declined by 11.7 per cent. This drop was mainly because many service sector businesses like restaurants and hotels were not in business.
Consumption of goods also declined by 4 per cent mostly because of slowdown in the clothing and apparel industries. Obviously, most people were not inclined to buy new clothes and shoes during a pandemic. Further, household purchases dropped by 56.8 per cent in March.
The USD/NOK also reacted to a drop in investments and international trade. Investments contracted by 5.1 per cent in the quarter. Additionally, exports of goods declined by 2.4 per cent in Q1 mostly because of the low oil prices.
Government boosts spending by $41 billion
The Norwegian government and the central bank have put measures in place to cushion the economy. In March, the government launched a massive NOK 139 billion stimulus package. These funds went to help employers keep their workers in payrolls.
The government also lowered and deferred some taxes, offered loan guarantees for SMEs, and started to buy bonds issued by companies. Just today, the government said it will spend $41 billion of its sovereign wealth fund to cushion the economy.
Norges bank has also put measures in place to cushion the economy. Just last week, it lowered interest rates to zero. It also established a $30 billion swap agreement with the Federal Reserve and provided more liquidity to banks.
USD/NOK technical outlook
On the hourly chart, we see that the USD/NOK pair rose and then pared back the gains after the GDP data. It is now trading at 10.2450, which is significantly lower than the day’s high of 10.3645. The price is also slightly below the 50-day and 100-day exponential moving average while the RSI has slumped. Further, the pair has formed a three white soldiers pattern, which means that it will likely continue dropping as bears attempt to test the low of 10.1693.