It was costing nearly eight Norwegian kroner to buy one US dollar Tuesday morning, after the country’s newly battered currency slumped against most others’ once again. This time it wasn’t entirely the price of oil that set off the decline.
After years of record strength, bolstered by a robust economy, Norway’s currency has been hammered by last year’s dive in oil prices. Since bottoming out last winter, though, the price of a barrel of North Sea crude has risen and it ended trading slightly up again on Monday, at around USD 65.
The krone fell nonetheless, but economists say the current slide is more related to how the oil price decline is now seeping into other portions of the Norwegian economy. On Monday, the Norwegian federation for purchasing and logistics (NIMA) and Danske Bank published a new monthly measurement of how purchasing chiefs around the country foresee ordering activity in the months ahead by companies and industries. Their new so-called PMI-index showed a marked decline from April to May.
Orders were especially weak within Norway, “and point therefore clearly in the direction of the oil industry slowdown among business in general,” stated Svein-Egil Hoberg of NIMA. He noted that employment activity also indicated a staffing decline among companies, in line with the recent rise in unemployment.
“The question is how deep and how long-lasting this will be,” Frank Jullum, chief economist of Danske Bank, told Norwegian business news website E24.
Jullum noted that the PMI-index has been slipping since February. He was, though, reluctant to claim that the index signals a slowdown for Norway’s mainland (as opposed to offshore oil and gas) economy. That’s because the service sector in Norway is so important in the country’s overall economy.
Newspaper Aftenposten reported that other assessments of economic activity in recent months, however, show a mainland slowdown. State statistics bureau SSB (Statistics Norway) predicted earlier this spring that growth within the mainland economy would decline by half, from 2.3 percent during the past two years, to just just 1.1 percent this year. The regional network of Norway’s central bank (Norges Bank) has also reported lower production growth with further declines expected. The government also reduced its economic growth forecasts in its revised national budget, but neither the finance minister nor the central bank’s governor foresee any crisis in the Norwegian economy.
Norway’s GNP is now expected to grow by 1.25 percent this year and 2 percent next year. Predictions are also rising, meanwhile, that the central bank will finally lower its key lending rate when the board meets for the last time before summer holidays later this month. That will likely prompt another decline in the value of the krone. Norwegians were being warned once again this week that any summer holidays abroad would be more expensive this year, regardless, and that prices of imported items would rise.