Norway Sees No Krone Volatility Exit as Oil Crowds EconomySaleha Mohsin
Norway’s government won’t do anything to address exchange rate volatility and is instead urging exporters to adapt their businesses to market swings.
“You will always get a fluctuating currency,” Finance Minister Siv Jensen said Tuesday in an interview at her Oslo office. “That’s something we have dealt with for a long time and there’s no exit from that.”
Norwegian exporters struggled to stay competitive during Europe’s debt crisis as the krone became a haven for investors fleeing a potential breakup of the euro. Now, with Europe on the mend, the currency has lost 5 percent against the euro over the past year, helping cushion a slowdown in oil investments. The krone’s one-month volatility gauge against the euro has averaged 7.2 over the past 12 months, compared with 6.9 between 1980 and 2010, according to data compiled by Bloomberg.
Jensen, who cut Norway’s growth forecasts in May, said the $500 billion economy is now strong enough to withstand the geopolitical and economic shocks that may come from outside its borders. She reiterated the government’s target of reducing Norway’s dependence on its oil industry, which contributes almost 25 percent directly to gross domestic product.
The krone gained 0.1 percent to 8.226 per euro as of 8:39 a.m. in Oslo.
A fall in oil prices after a rally in 2011 has coincided with depreciation in the krone since the end of 2012. That helped cushion a slowdown in the economy last year as Norwegian exports became more affordable. Brent crude has slid about 17 percent to $102 a barrel from a high in 2011.
“We predict a slowdown in oil investments in the years to come,” 45-year-old Jensen said. “They are still at a very high level and we still have huge reserves of both oil and gas, so we will still have huge revenue from that sector in the long-term perspective, but not at the same speed that we have had.”
Jensen, whose Progress Party entered government for the first time last year on a pledge to cut taxes, said Norway’s labor market is showing signs of improvement. Jensen made the comments as she drafts her first budget proposal since taking office in October. The Conservative-led, two-party government presents its recommendations in two months.
“We’re still in a very fortunate position, the Norwegian economy is very strong with high employment, low unemployment,” Jensen said. “The figures are showing even further improvement, which is good.”
The number of people registered as unemployed, adjusting for seasonal swings and including those in job programs, fell last month to the lowest since August 2013. The improvement comes after the government increased spending and the central bank signaled in June it may cut interest rates.
Prime Minister Erna Solberg in May proposed using a record chunk of Norway’s oil revenue to plug deficits. Measured as a percentage of the $890 billion wealth fund, oil money spending is estimated to be 2.8 percent this year, well below the 4 percent self-imposed Norwegian spending rule.
The government in May cut growth forecasts, estimating that mainland economic expansion, which excludes oil and gas output, will be 1.9 percent this year and 2.2 percent next year. It also predicted unemployment would rise to 3.8 percent next year from 3.7 percent this year.
“The most important thing is that the government puts forward a sound and reliable budget that takes into consideration the challenges that we have, and our ability to improve competitiveness,” Jensen said.