Norway’s economic woes, combining a sliding oil price with the coronavirus outbreak, have put downward pressure on its currency, the krone.
This morning, it trade at €0.088 against the euro and $0.098 against the dollar. One month ago, on 14 February, the respective rates were €0.1 and $0.11, while a year ago the krone traded at €0.1 on 15 March 2019 and $0.12 on 14 March last year.
Over the longer term, the krone has been more steady. Five years ago, on 27 March 2015, it traded at €0.12 against the euro and, on 13 March 2015, it was worth $0.12 against the dollar.
King addresses nation
Norway’s economy is strongly reliant on the oil industry – it divides the North Sea fields with the UK. According to America’s Central Intelligence Agency: “The country is richly endowed with natural resources such as oil and gas, fish, forests, and minerals…The government manages the country’s petroleum resources through extensive regulation. The petroleum sector provides about 9% of jobs, 12% of GDP [gross domestic product], 13% of the state’s revenue, and 37% of exports, according to official national estimates.”
Trade Euro / Norwegian Krone CFD
But the oil price has crashed during the last month, from $57.67 for a barrel of Brent crude on 17 February to $31.20 this morning, a 7.83% decline on the previous close.
Driving the price down are fears for the future of the global economy, fears exacerbated by the coronavirus epidemic.
Norway has triggered emergency powers to combat the virus, with widespread restrictions on public meetings and travel. The country’s monarch King Harald [correct Harald] spoke to the nation on television on Saturday. According to Reuters, he said: “We don’t feel at home in our daily lives, or the world around us. And still we are only at the start of something that we don’t fully know the consequences of.”
Cheery forecast put at risk
The government is offering Norway’s sector the equivalent of $9.7 billion to support it through the coronavirus outbreak.
In a review of the economy published in December, the 36-nation rich countries’ club, the Organisation for Economic Co-operation and Development (OECD), noted: “Well-being in Norway is high; GDP per capita is among the top-ranking countries and the country scores well in measures of inclusiveness. Several challenges must be addressed, however, if this good standing in to be sustained.”
These included risks to trade – Norway is a major exporter – and the need for public spending to be deployed more efficiently.
In June, in its latest Article IV health check, the International Monetary Fund (IMF) wrote: “Norway’s economic momentum remains strong, supported by higher oil prices, competitiveness gains stemming from the weaker krone, and a robust labour market. After growing by 2.2% in 2018, mainland economic activity is expected to accelerate further and rise by about 2.5% this year, before growth slows to 2.1% in 2020.”
The fall in oil prices puts this rosy scenario at risk, and even before crude values started tumbling the IMF warned of risks: “Global trade tensions persist, as does uncertainty about European growth. On the domestic side, risks from residential house price growth have abated, but not disappeared, while valuations in commercial real estate prices are growing strongly and appear stretched in some segments.”