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Wednesday, April 17, 2024

Norway can win on its weaker krone

Norway’s oil sector may be slumping along with oil prices, but lots of other Norwegian companies are benefiting from the recent plunge in the value of the country’s currency, the krone. All the talk of an economic slowdown after years of unprecedented prosperity may also renew the fortune of the country’s conservative minority government.

Officials at biochemical producer Borregaard have reason to smile, as the company profits on Norway's weaker krone. Here, they were celebrating the opening of a new addition to its biogas factory last week. PHOTO: Borregaard
Officials at biochemical producer Borregaard have reason to smile, as the company profits on Norway’s weaker krone. Here, they were celebrating the opening of a new addition to Borregaard’s biogas factory last week. PHOTO: Borregaard

The fall in oil prices from record high levels above USD 100 a barrel to just around USD 60 this week has fueled fears of economic contraction, higher unemployment and lower wage growth. The Oslo Stock Exchange has tumbled in line with the sharp fall in oil-related shares, prompting government officials from Finance Minister Siv Jensen to Prime Minister Erna Solberg to assure Norwegians that the country nonetheless faces no crisis, even as the krone took an historic dive earlier this week.

The former strength of the krone, however, had caused economic challenges of its own, not least for Norwegian export industries. Norway is already known for its high prices, and the strong krone versus the euro and US dollar, for example, only made things worse for exporters trying to offer competitively price goods and services abroad.

Non-oil shares jump
Now, nearly all the companies trading on the Oslo Stock Exchange that are outside the oil sector are profiting from the weaker krone. Newspaper Dagens Næringsliv (DN) reported how bio-chemical company Borregaard has seen its share price jump in recent weeks, with DNB Markets singling it out as the biggest winner in the krone drama.

“The more you have your costs in Norwegian kroner, and the more sales you have in foreign currencies, the better,” Paul Harper of DNB Markets told DN. Per Bjarne Lyngstad, finance director at Borregaard said he wasn’t popping open champagne bottles yet, but he was glad the krone had weakened. Fully 90 percent of Borregaard’s production is sold overseas, with payment made in steadily stronger dollars and euros. That can bring far more kroner into Borregaard’s coffers.

Aluminum producer Norsk Hydro and salmon producers Salmar, Royal Norway Salmon and Lerrøy have also been identified as companies clearly benefiting from the weaker krone, for the same reasons. Technology companies with lots of customers outside Norway, like Telenor and Opera Software, also profit on the weaker krone.

Tourism industry delighted
Norway’s battered currency seemed to stabilize by midweek at around NOK 7.40 against the US dollar after a wild ride caused by the central bank’s decision to cut interest rates last week. The krone remains at its weakest level in 10 years, though, and that can also boost Norway’s tourism industry. It simply won’t be as expensive for American and European tourists to visit Norway, for example, because their money is now worth more. A hotel room rate of NOK 1200 a night, for example, cost around USD 160 this week, instead of USD 200 just last year.

Norwegian hotels, the coastal voyage Hurtigruten and local restaurants and retailers are among those with good reason to look forward to the New Year if the krone stays weak. “It’s become much cheaper to travel around Norway recently,” John Linløkken, market strategist for Nordnorsk Reiseliv told newspaper Aftenposten. DN reported how Norwegian ski resorts were already seeing a jump in business.

“Bookings tend to ease off just before Christmas,” Andreas Smith-Erichsen of Skistar  which operates Hemsedal, told DN. “We’re not seeing that this year.” At the same time, it’s become more expensive for Norwegians to travel abroad, which may prompt them to take more holidays at home.

More credibility for government’s agenda
Prime Minister Solberg repeated in her year-end summary this week that Norway needs to readjust its economy in the future, away from reliance on the oil industry and towards efforts to making Norway’s other companies in the non-oil sector more competitive internationally. The recent economic turbulence may help her government get that message across to voters, as it attempts to drive through reforms like easing work rules and promoting other deregulation.

“After an autumn with falling oil prices, the subsequent fall of the krone and interest rates, the future has suddenly come a bit closer,” wrote political commentator Trine Eilertsen in Aftenposten on Thursday. Norwegians can now envision an economic slowdown, “and presto!” Eilertsen wrote, “Suddenly Erna Solberg has a peg to hang her project on.” An economic downturn can lend credibility to her pro-business projects. Welfare reform and tax breaks can be more easily sold as necessary for “readjusting” Norway’s economy, along with a need for more efficiency in the public sector and investments in education and transportation.

“We have created policies ready to tackle this (an economic downturn),” Solberg told newspaper Dagsavisen. “We see that a need to make changes (away from oil reliance) has come more quickly than we had expected.” Perhaps just in time to buoy her government’s sagging popularity in public opinion polls. Berglund



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