Norway’s biggest labor union urged the central bank to keep a lid on the krone as the group looks for ways to secure pay gains without overheating the economy of Scandinavia’s richest nation.
In a prelude to collective bargaining talks set to start in March, Norwegian Confederation of Trade Unions head Gerd Kristiansen yesterday rejected employer proposals to keep wage increases of below 3 percent.
“It’s very important that Norges Bank keep the pressure on the krone so it’s low because that’s easier for our export industry,” the 58-year-old union leader said in an interview yesterday. “Our members should get their part in the growth Norway is seeing and we should get our hands on the pension system that the employers are currently controlling.”
Norway, backed by an $830 billion sovereign wealth fund, is struggling to absorb an oil and gas industry that has driven up production costs. That’s threatened to hamper competitiveness for some of the country’s biggest exporters such as Norsk Hydro ASA. Though the currency has eased 13 percent against the euro over the past year, it’s still 27 percent overvalued, according to a gauge of purchasing power by the Organization for Economic Cooperation and Development.
The krone weakened 0.2 percent to 8.3221 per euro as of 2:36 p.m. in Oslo.
The union head said the central bank has so far done a good job in managing the krone and for helping to keep unemployment “near zero.”
The bank cut rates in 2011 and 2012 in part to help combat krone gains. In June last year, it signaled it was again ready to cut rates after falling import prices drove inflation well below the bank’s 2.5 percent target. The bank in December left its benchmark rate at 1.5 percent and pushed back tightening plans by a year to mid-2015.
Central bank Governor Oeystein Olsen said last week that exporters shouldn’t count on a weaker krone to compensate for competitiveness lost because of rising costs in western Europe’s largest oil exporter.
“As long as inflation is low and stable, the krone can act as a buffer during periods of adjustment,” Olsen said last week in his annual speech in Oslo. “We cannot, however, rely on a depreciation of the krone to ensure Norway’s competitiveness in the long run.”
Norway must start preparing for an economy without oil output, Olsen said, adding that investment in the petroleum industry is leveling off and output growth has “slackened” in the mainland economy.
Kristin Skogen Lund, head of the Confederation of Norwegian Enterprise, who will take the other side of in this year’s wage talks, last month said that exporters need to focus on pay curbs rather than blaming the currency for lost 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,” she said.
A government study released this week showed that industrial wages in Norway last year were 55 percent higher than the average of its trading partners. That slid 2 percentage points from the year before, helped by a weaker krone. Norwegian manufacturing wages have risen 4.2 percent, on average since 2004, compared with 2.8 percent for its trading partners.
Norges Bank predicts wages grew by 3.5 percent last year. It sees wages increasing by 3.5 percent and 3.75 percent this year and next.
The economy also slowed last year weighed down by record consumer debt and dropping house prices after a five-year rally. For the year, the mainland economy expanded 2 percent, the statistic agency said, slowing from 3.4 percent in 2012.
The LO boss said that wages are higher in Norway to offset high cost of living.
“Norway’s biggest problem is the export industry,” said Kristiansen. The best way to help that industry is to ’’keep the krone low.’’