Currency Traders: Here's a Love Letter From Norway's Eliteby and
Finance minister says krone doing a `significant' job
Statoil CEO says crude oil price could go even lower
Norwegian government officials and top business executives are sending warm thoughts to currency traders for saving the economy from the abyss.
With the oil price falling off a cliff, the main thing supporting western Europe’s biggest crude producer is the export boost it’s getting from a devalued currency.
Norway faces major adjustments, its leaders warn, and can’t rely on oil income to pave the way to prosperity anymore. Gathering Thursday at an annual conference in Oslo hosted by the Confederation of Norwegian Enterprise, chief executives and officials said the plunge in the currency is a bright spot for the economy after Brent crude hit the lowest in more than a decade.
“Many of the buffers we wished would work are now working,” Finance Minister Siv Jensen said in an interview at the conference. “The krone rate is doing a significant part of the job for Norwegian businesses.”
Norway is facing “a durable structural change” that will be “very demanding,” she said. “But we’re taking it very seriously.”
The plunge in oil may mean the government will need to dip further into the country’s $820 billion oil fund, which it uses to support the budget.
Prime Minister Erna Solberg said the government for now doesn’t have any reason to adjust the budget, which is “very expansive.”
“I’ve experienced an oil price of $11,” she said to reporters at the conference. “So one has to stay a bit cool in these up and downs. But this clearly prolongs a downturn period.”
Brent traded as low as $32 a barrel this week, down from a 2014 high of more than $115. The krone has fallen more than 30 percent against the dollar over the same period and is down about 15 percent against the euro.
The chief executive at Statoil ASA, Norway’s largest oil producer, says crude prices may have further to fall before recovering eventually. “It could go even lower, and it just underlines the uncertainty,” Eldar Saetre told Bloomberg.
Statoil’s spending cuts have sent ripples through the economy. But as Norway’s oil producers and service companies have cut almost 30,000 jobs, others are benefiting from the weak currency. Those include Norsk Hydro ASA, Europe’s third biggest aluminum producer.
“There’s no doubt that the oil price fall and the currency weakening help the export industry in Norway,” Hydro CEO Svein Richard Brandtzaeg said in an interview. The current adjustment “can feel dramatic, but it’s necessary. We have continuous improvements because we can’t count on a weak currency forever.”
Industry Minister Monica Maeland said the country will need to accept that many of the lost jobs in the oil industry won’t be coming back. But petroleum will remain a big part of the economy.
“The situation we’re in is good for many in the mainland industry, in export-focused businesses, which we have many of,” she said. “We need to keep that in mind on days with low oil prices, which is very difficult for other parts of the economy.”
But relying on a weaker currency doesn’t come without risks, among which is imported inflation. Norway’s central bank, which has spent almost two years trying to weaken the currency, last month kept its benchmark rate unchanged and said it will be “careful” in easing, citing a weaker-than-expected currency and financial stability.
Governor Oeystein Olsen, who also attended Thursday’s conference, urged investors, consumers and businesses to keep a “cool head.” He says oil prices will probably recover somewhat.
Consumer goods company Orkla ASA is facing a “demanding” situation because the weak currency is pushing up costs, said CEO Peter Ruzicka. Norway faces hard times ahead perhaps through 2018, he said in an interview at the conference.
“At the same time a lot of Norwegian industry becomes more competitive because of the weak currency,” he said. “That’s positive so there’s some light. But the oil industry is so big and there’s so much employment directly in the oil industry and in industries around it, so there’s such a big need to compensate.”
The nation’s financial regulator this week cautioned that Norway’s banks might be underestimating the risks posed by the oil price slump.
But that warning was largely dismissed by the head of DNB ASA, Norway’s largest lender.
“It’s sound to be worried to some degree,” CEO Rune Bjerke told Bloomberg. “But one should not be too worried because the Norwegian economy is very robust and strong. If there’s one country that has ability to tackle a turbulent time -- it’s Norway.”