Norway Conservative Party leader Erna Solberg said she will work to weaken the krone to boost competitiveness as cost pressures weigh on the economy of western Europe’s largest oil producer.
The opposition “inherits a Norway in headwinds, with growing unemployment, a stronger krone,” Solberg, who ousted Labor Prime Minister Jens Stoltenberg this week in elections after promising tax cuts, said in her first major speech after the vote. “Turning that trend around is something we must prioritize. If we’re to build Norway for the future, we must be careful to invest for the future, but also keep order today.”
Norway is struggling to stay competitive by finding ways to avoid an overheating cycle that risks driving up wages and rendering its exports too costly. The new government, which will take power in mid-October, will need to deal with a potential housing bubble, manufacturing wages that are about 70 percent higher than the European Union average and an overvalued krone.
A regional network survey from the central bank today signaled slower-than-expected growth over the past three months, a “moderate expansion” over the next six months as well as slowing employment growth.
The krone slid, weakening 0.74 percent to 7.8823 per euro as of 3:14 p.m. in Oslo. The currency, which emerged as a haven during Europe’s debt crisis, is up 17.7 percent against the dollar and 24 percent against the euro since the end of 2008.
The krone is down 6.7 percent this year against the euro, in part as the central bank signaled it was prepared to cut rates to take pressure off the currency.
Solberg, 52, is preparing to become prime minister and start government talks with the three other opposition parties, including the Progress Party, which has promised to spend more of the oil wealth. The Conservative leader said earlier this week that she will seek to keep oil money spending well within a 4 percent spending rule of Norway’s $760 billion wealth fund.
Solberg said today that she was prepared to compromise and “optimistic” about forming a new four-party government.
“Using more money on education and also increasing savings rates will not lead to the type of pressure on the krone as we have seen,” she said in an interview. “The pressure on the kroner might decrease if the oil price falls a bit but we need to make sure that we increase in other sides of the economy, not just the oil and gas sector.”
The spending rule, introduced last decade by the Labor Party, is one of the main sticking points dividing the four-party coalition that won the Sept. 9 vote. The Conservatives, Liberals and the Christian Democrats all support the rule while the Progress Party has campaigned on scrapping limits.
Central bank Governor Oeystein Olsen, who helped design the 4 percent rule while at the finance ministry last decade, has proposed paring the spending limit to 3 percent to cool oil money spending.
Norway’s mainland economy, which excludes oil and gas output, will grow 2 percent next year, unchanged from this year. That will beat the 0.7 percent estimate for the euro area, according to DNB ASA forecasts.
“We’ve had a golden period in the Norwegian economy for the past eight years,” Solberg said. “But unfortunately, several arrows are pointing to possibly tougher years ahead.”