NEWS ANALYSIS: A huge surprise loss at Norway’s biggest bank, a bankruptcy that set off massive inconvenience, layoffs at major Norwegian companies, calls to rein in the oil industry and new concerns over debt and and high housing prices are just some of the bulletins suddenly jarring the perception of a strong Norwegian economy. Even Norway’s central bank seems to be giving up hopes that the country’s weak currency will strengthen anytime soon.
Norway’s weak krone has baffled analysts and economist for months. Few can understand why the Norwegian currency isn’t stronger than it is, given the country’s still-strong economy, low unemployment and, not least, four interest rate increases over the past year. Yet the krone quickly weakened even after last week’s latest interest rate rise, despite some initial strengthening, and Norges Bank Governor Øystein Olsen now thinks it will remain weak until 2022.
“We take the consequences of the experience we have,” Olsen told newspaper Aftenposten after Thursday’s press conference on the interest rate hike. “We have seen that the currency exchange rates are weaker.” Aftenposten reported over the weekend that Norges Bank has “radically” changed its opinion about a stronger krone since all the speculation hasn’t panned out. A US dollar was still costing just over NOK 9 by Wednesday.
Then came the news that a specially appointed UN adviser thinks Norway must stop exploring for more oil and gas on its continental shelf, to meet its own stated climate goals. The securities arm of Norway’s biggest bank (DNB) tied the need to restructure Norway’s economy (with lower investment in oil and gas) to the weak krone, along with international uncertainty.
Now, just 11 days before Finance Minister Siv Jensen is due to present the state budget for next year and predictably extoll the virtues of Norway’s economy, she’s faced with a string of more disturbing developments. On Monday, around 9,000 Norwegians alone were stranded by the bankruptcy of UK-based Thomas Cook Group, which owns the local charter tour operator Ving Norge. It’s profitable, but got dragged into the bankruptcy chaos before regaining permission from banks and other lenders to operate on Tuesday. Ving managed to resume operations on Tuesday but now it’s expected to be sold.
The next day, DNB announced it would be taking a stunning loss amounting to NOK 1 billion (around USD 111 million) “on a specific lending engagement.” DNB refused to identify the errant borrower. While some suggested DNB’s new CEO may be “cleaning up” the porfolio she’d just taken over, analysts tied the loss to Thomas Cook’s bankruptcy. Both Thomas Cook and Ving have been DNB customers, but DNB wouldn’t confirm any connection to its loss. Newspaper Dagens Næringsliv (DN) reported, meanwhile, that the otherwise highly profitable DNB already has reduced its exposure to the shipping, oil and gas and offshore industries.
Job cuts at Hydro and Kongsberg Maritime
Lots of other negative business and economic news broke earlier this week as well. Norsk Hydro, one of Norway’s largest companies, plans to cut 2,200 jobs (6 percent of its total staff worldwide) both at home and abroad, with around 250 of the cuts to be made within Hydro’s administration. Profitability is simply too low, announced Hydro’s new CEO Hilde Marie Aasheim when she addressed investors and analysts Tuesday morning. The company won’t try to keep on growing but plans to improve economic results through cost cuts and restructuring. “There will be major changes,” Aasheim said.
The job cuts were nearly three times the 735 announced earlier this month at the major aluminum producer that’s also been hit with severe problems in Brazil and a major hacking attack. Not enough people have quit, and Finance Director Pål Kildemo warned that workers at both Hydro’s headquarters at Vækerø in Oslo and its plants at Karmøy and Holmestrand will have to go.
Another large company in which, like Hydro, the state has a major stake also announced layoffs. Kongsberg Maritime told its employees on Tuesday as well that 130 jobs will be eliminated, mostly in Sunnmøre. That brings total job losses at Kongsberg up to 230, with its ship design and deck machinery units in Ålesund, Hjørungavåg and Brattvåg getting hit the hardest.
Retailers under pressure
Then came more evidence that online shopping and new low-price chains are posing new competitive threats to Norway’s major retailers including NorgesGruppen. It dominates the grocery store market in Norway but likely won’t be able to maintain its traditionally high margins, especially within its sundries and cosmetics lines. Norwegians can now buy much cheaper shampoo, soap and other products at chains like Normal and Loco that are popping up in Oslo and expanding. They’re attracting lots of customers who are weary of Norway’s notoriously high prices for everyday items.
Online shopping (called netthandel, in Norwegian) has grown by 146 in the last six years, meanwhile, while the number of actual stores has grown by just 16 percent. Knut Erik Rekdal, senior analyst at retail employers’ association Virke, told DN that fully 28 percent of Norwegian retail chains logged losses last year.
While store closures can also lead to job losses, Norway also received another warning from the European Systemic Risk Board (ESRB). It worries that Norway’s housing market remains vulnerable because of high housing prices and high household debt (among the highest in the world, thanks to tax policy that all but rewards debt while punishing savings). There have been some reports that household debt levels have stabilized and even dipped, but they remain high in terms of disposable income.
‘More sustainable development’ needed
DN reported that Finance Minister Siv Jensen responded by acknowledging that ESRB’s evaluation was in line with “our own” and confirmed the need to “secure solidity in the banks and contribute to more sustainable development in household debt.”
It all amounted to a suddenly worrisome compilation of events that takes some of the shine off Norway’s seemingly strong economy. Many markets are in flux, from industry to retailing and even media, where newspapers and other commercial media ventures continue to grapple with a sharp loss of advertising and ongoing struggles for subscription income. DN itself reported last week that it needs to cut costs by NOK 30 million, with more than NOK 20 million of it due to come from staff cuts. All employees, including editorial staff, were offered severance packages and if they’re not accepted, layoffs loom.