Currency Relief Running Out for Norway as PM Sees No Quick Fix

  • Norway’s premier warns against relying on weak krone
  • PM says it’s too early to say whether Norway is past worst

Norway’s Prime Minister Erna Solberg is warning exporters in her country against relying too heavily on the weakening currency that have supported their sales abroad in recent years.

“We can’t rely on a weak currency going forward,” the 55-year-old premier told Bloomberg in Oslo on Wednesday. "In the long run, it’s Norway’s productivity level and innovations that will determine our ability to grow.”

A weaker krone has so far played a vital role in saving western Europe’s biggest oil producer from a recession. Norway’s economy is showing signs of recovering following this year’s oil price rally and as the government draws on its wealth fund to deliver a record stimulus program. The krone lost about 30 percent on a trade-weighted basis from 2013 to early 2016, helping non-oil sectors of the economy to flourish and keeping unemployment in check.

Solberg’s administration plans to spend a record amount of the country’s oil wealth this year, and is even dipping into Norway’s $870 billion sovereign wealth fund for the first time to ward off a recession. The central bank has cut rates to a record low of 0.5 percent, helping keep down the krone.

But the currency has recently shown signs of strengthening, rising along with the oil price. On a trade-weighted basis, it’s about 3 percent stronger since January. The central bank, which left its main rate at 0.5 percent on Thursday, said the “krone has been stronger than anticipated,” since its March report.

Key economic indicators point to a revival in demand. A report on Wednesday showed unemployment held at 4.6 percent in April, beating an estimate for 4.7 percent. A survey from the central bank released earlier this month suggests companies were more positive in their outlook for production.

While it’s “good that the economy is now showing some positive signs and that unemployment is going down slightly,” Solberg warned that the “developments are fragile.”

“There are many economic factors surrounding us, such as a potential Brexit and its implications for European growth, that may have a negative impact on the Norwegian economy,” she said. “I haven’t said that the economy has bottomed out. We could see a grimmer picture going forward.”

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