Economists: Drastic measures are needed for the krone to return to old levels

From previous peak levels in 2013, the Norwegian krone has weakened sharply against foreign currencies. Falling oil prices and falling Norwegian productivity have, according to economists, contributed to the weakening.

Last week we experienced a significant weakening of the krone, and the euro cost over NOK 12 on Thursday. This has led to the debate about the level of the krone having fully blossomed.

Several economists believe that the current level is the new normal.

– More correct long-term level

Community economist Steinar Juel in Civita, however, downplays the recent devaluation of the krone and emphasizes that the krone has already strengthened a little. He believes that you have to count on that kind of movement with a floating exchange rate.

– It can be coincidences that strike. The exchange rate is determined by how many people buy and sell Norwegian kroner. Especially in the summer when the market is thin, single transactions from large companies can have a big impact, says Juel to NTB.

He believes it is positive that the Norwegian krone is weaker now than ten years ago, as such levels would have made export companies less competitive.

Juel dismisses that there is talk of a krone collapse and believes that the krone is rather at a more correct long-term level now.

– Now we are there

Currency strategist Magne Østnor in DNB Markets wrote in a report on Tuesday morning that the krone’s weakening throughout last year has probably contributed to lifting wage growth through high earnings in the frontline profession.

He nevertheless also believes that the level of the krone exchange rate does not deviate too much from what can be assumed to be a long-term equilibrium exchange rate for the krone.

– We have long thought we would see EUR/NOK at 12.00. Now we are there, writes Østnor in the report.

Structural changes

– We either had to cut wages dramatically, raise productivity drastically in Norway, or let the currency market do the work by weakening the Norwegian krone. It is largely the last thing that has happened, says chief economist Marius Gonsholt Hov at Handelsbanken TV 2.

Hov believes that there have been structural changes in the Norwegian economy which make it difficult to reach old highs for the krone exchange rate, and he receives a lot of support from chief economist Elisabeth Holvik in the Sparebank 1 group.

She believes that it will require extensive structural reforms to increase productivity growth, increase the competitiveness of Norwegian companies and make it more attractive to invest in Norway.

The last time we managed it was through the solidarity option at the start of the 1990s. Norway was then in a deep economic crisis.

– In that case, it must be that a solidarity alternative 2.0 is achieved with significant cuts in the public sector, tax reform and mechanisms that ensure long-term sustainability in the economic framework conditions for companies and investors, she says to TV 2.

Positive for Norwegian companies

Investment director at Nordea, Robert Næss, also believes that it is most likely that the krone exchange rate will remain relatively weak at current values ​​in the near future. At the same time, he points out that there are benefits from a weak krone exchange rate.

– The weak krone exchange rate has meant that most Norwegian companies on Oslo Børs are doing better than they would otherwise have done measured in Norwegian kroner. The weak exchange rate has actually helped quite a bit, says Næss Finansavisen.

He explains that about two-thirds of the companies on Oslo Børs profit from the weak krone exchange rate, as the companies sell abroad or operate internationally, where transactions are made in euros or dollars.

– In Norwegian kroner, Oslo Børs has had a pleasant return of 133 per cent over the past ten years, but measured in dollars, the stock exchange has not risen more than 30 per cent in the same period, says Næss.