Norway Finance Minister: Must Expect Strong Currency Due to Strong Economy
OSLO - Norway should expect a strong currency on the back of its robust economic performance, said Finance Minister Sigbjorn Johnsen Monday, as he presented another surplus budget fueled by significant oil revenues.
"We must expect a strong currency, because Norway is in a different economic position than many European countries," Mr. Johnsen said.
But the strong krone and high costs in the Norwegian economy are a challenge to parts of traditional industry competing abroad, Mr. Johnsen said. The fiscal 2013 budget was designed to have a neutral effect, to avoid overheating the economy, he added.
"Total investments in the Norwegian economy are now about 550 billion kroner ($96.32 billion), including oil investments. We take that into account when we design the budget. This is the background music for the neutral arrangement," he said.
The Norwegian krone strengthened toward record levels against the euro this summer, and is also strong measured against the currencies of Norway's trading partners. Norges Bank expects the krone to strengthen further in 2013 and 2014, driven by a higher key interest rate in Norway than abroad.
Norway planned to increase its spending of oil revenues 7.8% to NOK125.3 billion in 2013 from a year earlier, out of total expenditures of NOK1.065 trillion. This is NOK26.4 billion below its self-imposed spending limit of 4% of the value of the country's NOK3.740 trillion sovereign wealth fund.
"I think our budget is well in line with the trend we see in the Norwegian economy," Mr. Johnsen said. "If it wasn't, we might have expected stronger reactions."
After experiencing a shallow recession following the financial crisis of 2008 and 2009, Norway bounced back quickly, helped by booming oil and gas investments as oil prices increased. Unemployment is currently about 3%, income growth is above 4% and Norway expects a NOK380 billion fiscal surplus in 2013.
The government expected Norway's mainland gross domestic product, excluding oil and gas production, to grow 3.7% in 2012, outpacing its main trading partners, which were expected to grow 1.8%, and the euro-zone GDP which it expected to contract 0.5% in 2012.
But a continued slowdown in Europe could also affect Norway's exports of goods and services, warned Mr. Johnsen. About 80% of the country's exports go to the rest of Europe, according to Statistics Norway.
"If the European market tightens further, it would also affect the Norwegian economy," Mr. Johnsen said, adding that this might force Norway to try harder to limit income growth.
Along with the strong krone and booming housing prices, rapid wage growth is one of Norway's main challenges. Norwegian industry wages are currently more than 50% higher than among Norway's European trading partners.
Nevertheless, Mr. Johnsen admitted to be one of Europe's luckiest finance ministers.
"There is no doubt Norway's in a fortunate situation," he said. "We are in a good situation because we have huge natural resources, but that's only half the story. The other [part of the] story is that our fiscal-policy framework is building trust and stability."
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