Currency woes threatening Norwegian economy

Oslo: As the currency of one of the world’s richest nations becomes increasingly difficult to trade, the government is starting to worry about the economic fallout.

Prime Minister Erna Solberg says the rapid weakening of Norway’s krone will only provide short-term relief to western Europe’s biggest oil producer. In the longer term, the loss of liquidity and increased volatility pose a threat to businesses struggling to plan investments.

“It helps some of those industries that have been suffering a bit on competitiveness,” Solberg told Bloomberg on Saturday while attending a Nordic Council meeting outside Copenhagen. “But it’s not good for a country in the long run to have an unstable currency because you also need to be able to long-term plan when you are doing investments.”

Norway’s krone has plunged more than 20 per cent against the dollar over the past year. It’s the worst of the 10 major currencies tracked in the Bloomberg Correlation Weighted Index in the period. Over the past three months, it’s displayed the biggest increase in volatility against the euro of the major currencies monitored by Bloomberg.

But Solberg’s warning that the trend may pose a threat to the economy is at odds with the message coming from the central bank. Governor Oeystein Olsen says he welcomes the decline in his nation’s currency because it helps exporters. He delivered a surprise rate cut on September 24, driving the krone down more then 3 per cent against the euro at one point during the day.

Olsen merely notes that the krone has weakened together with the price of oil. He wouldn’t “characterise that as volatility,” he said last month.

But a number of economists have echoed Solberg’s concerns. Strategists at some of Scandinavia’s biggest banks say the currency is being treated with extra caution. Danske Bank points out that markets have put a “Norges Bank uncertainty” premium on the krone. Commerzbank warns that some investors and traders are staying away from the currency because of its volatility. That’s depleting liquidity and making the krone even more volatile.

Solberg underscored her government’s commitment to weaning Norway off its oil addiction. Almost a quarter of output and one in nine jobs are dependent on the petroleum industry in Norway.

“We must make sure our economy has more feet to stand on,” she said.