diff --git a/loader/loader.go b/loader/loader.go
index 54803201..ab7cf542 100644
--- a/loader/loader.go
+++ b/loader/loader.go
@@ -261,6 +261,13 @@ func Load(configDetails types.ConfigDetails, options ...func(*Options)) (*types.
 		Extensions:  model.Extensions,
 	}
 
+	if !opts.SkipNormalization {
+		err = Normalize(project)
+		if err != nil {
+			return nil, err
+		}
+	}
+
 	if opts.ResolvePaths {
 		err = ResolveRelativePaths(project)
 		if err != nil {
@@ -277,13 +284,6 @@ func Load(configDetails types.ConfigDetails, options ...func(*Options)) (*types.
 		}
 	}
 
-	if !opts.SkipNormalization {
-		err = Normalize(project)
-		if err != nil {
-			return nil, err
-		}
-	}
-
 	if !opts.SkipConsistencyCheck {
 		err = checkConsistency(project)
 		if err != nil {
diff --git a/loader/loader_test.go b/loader/loader_test.go
index 8f2507e0..58fded20 100644
--- a/loader/loader_test.go
+++ b/loader/loader_test.go
@@ -1928,7 +1928,8 @@ func TestLoadWithExtends(t *testing.T) {
 
 	extendsDir := filepath.Join("testdata", "subdir")
 
-	expectedEnvFilePath := filepath.Join(extendsDir, "extra.env")
+	expectedEnvFilePath, err := filepath.Abs(filepath.Join(extendsDir, "extra.env"))
+	assert.NilError(t, err)
 
 	expServices := types.Services{
 		{
diff --git a/loader/normalize.go b/loader/normalize.go
index ee11cf4d..1fe9fbad 100644
--- a/loader/normalize.go
+++ b/loader/normalize.go
@@ -29,6 +29,7 @@ import (
 
 // Normalize compose project by moving deprecated attributes to their canonical position and injecting implicit defaults
 func Normalize(project *types.Project) error {
+	// TODO(milas): this really belongs in ResolveRelativePaths
 	absWorkingDir, err := filepath.Abs(project.WorkingDir)
 	if err != nil {
 		return err
@@ -44,8 +45,7 @@ func Normalize(project *types.Project) error {
 		project.Networks["default"] = types.NetworkConfig{}
 	}
 
-	err = relocateExternalName(project)
-	if err != nil {
+	if err := relocateExternalName(project); err != nil {
 		return err
 	}
 
@@ -65,6 +65,9 @@ func Normalize(project *types.Project) error {
 		}
 
 		if s.Build != nil {
+			if s.Build.Context == "" {
+				s.Build.Context = "."
+			}
 			if s.Build.Dockerfile == "" && s.Build.DockerfileInline == "" {
 				s.Build.Dockerfile = "Dockerfile"
 			}
diff --git a/loader/normalize_test.go b/loader/normalize_test.go
index f5b1af16..e68f13c6 100644
--- a/loader/normalize_test.go
+++ b/loader/normalize_test.go
@@ -218,3 +218,17 @@ func TestNormalizeImplicitDependencies(t *testing.T) {
 	assert.NilError(t, err)
 	assert.DeepEqual(t, expected, project.Services[0].DependsOn)
 }
+
+func TestImplicitContextPath(t *testing.T) {
+	project := &types.Project{
+		Name: "myProject",
+		Services: types.Services{
+			types.ServiceConfig{
+				Name:  "test",
+				Build: &types.BuildConfig{},
+			},
+		},
+	}
+	assert.NilError(t, Normalize(project))
+	assert.Equal(t, ".", project.Services[0].Build.Context)
+}