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Krone Turns Into Cudgel as Norway Businesses Seek Pay Curbs

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Krone Turns Into Cudgel
Unions and businesses are preparing to start collective bargaining talks for this year amid signs that western Europe’s largest oil exporter is losing competitiveness. Source: Statoil

Jan. 22 (Bloomberg) -- Norwegian exporters need to focus on pay curbs rather than blaming the currency for lost competitiveness, according to the head of the nation’s biggest industry group.

Unions and businesses are preparing to start collective bargaining talks for this year amid signs that western Europe’s largest oil exporter is losing competitiveness.

“We need to have wages under control and that will enable us to keep a low interest rate, which will enable us to control the currency, or influence the currency to stay low,” Kristin Skogen Lund, head of the Confederation of Norwegian Enterprise, said yesterday in an interview in Oslo.

Norwegian wages, fueled by the nation’s oil wealth, are higher than most other places. Average manufacturing labor costs are about $64.15 an hour, the highest among 33 countries examined by the U.S. Labor Department. That’s 35 percent more than in Germany and 80 percent more than the U.S.

At the same time, exporters such as Norsk Hydro ASA have struggled in recent years to adapt to appreciation in the krone. Though the currency has eased 16 percent against the euro since the beginning of last year, it’s still 26 percent overvalued, according to a gauge of purchasing power by the Organization for Economic Cooperation and Development.

Very Difficult

“It’s very difficult to control the currency,” Lund said. “The best we can do is to get the cost increase under control,” she said, adding that the government is sending “very clear signals that they are concerned about Norwegian competitiveness.”

The more recent decline in the krone followed central bank warnings it will cut interest rates to prevent excessive appreciation. Norway’s economy slowed last year, hurt by weak export demand and as a boom in the housing market started to reverse. Norway, backed by an $830 billion sovereign wealth fund, is struggling to absorb an oil and gas industry that has driven up production costs and fueled overheating risks.

Annual wages rose more than 4 percent in 2011 and 2012, according to Statistics Norway. Lund said she has told unions that she won’t accept any increase of more than 3 percent.

Slowing Growth

“Hourly wage costs in Norway are almost 70 percent higher than in neighboring countries,” Finance Minister Siv Jensen said yesterday in a speech in Oslo. While Norway’s economy is developing “slower than in previous years,” she said “the economy will be good over the next period.”

The statistics agency predicted in December that Norway’s mainland economy, which excludes oil and gas production, will expand 2.1 percent this year, after slowing to 1.8 percent in 2013. It expanded more than 4 percent in the middle of last decade.

“I hope there is sufficient understanding on the part of the unions that we need to control the wage gap between Norway and the countries that we compete with,” Lund said.

Prime Minister Erna Solberg said last month exporters need to be prepared for krone fluctuations. The premier, who took office in October, has vowed to boost productivity and infrastructure and to lower taxes to increase competitiveness and shield companies from currency swings.

To contact the reporter on this story: Saleha Mohsin in Oslo at smohsin2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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