Source: ForexYard
The Norwegian krone (NOK) is one of the few currencies which face only minor threats in these gloomy days of market pessimism. Its southern neighbors of the euro zone are undergoing constant crises of sovereign debt which could put strain on the relationships holding the monetary union in tact. The NOK has recently undergone three consecutive days of losses, though few economists consider this short-term trend to be lasting.
Norway has weathered the economic storms of the last four years better than most. Its economy is set to experience 3% GDP growth this year, with an expected 3.75% growth next year, according to its central bank forecasts. Underlying inflation is holding steady near 1.2%, up from 0.8% earlier this year, and the relatively high value of crude oil is supporting solid financial growth in the Scandinavian giant.
What worries several analysts on this matter, though, is what impact a stronger krone will have on high-valued sectors of Norway’s economy. The proxy safe-haven status given to the Scandinavian currencies these past few months has helped their values soar, but high currency values gouge industry’s ability to export their goods at affordable prices.
As companies like Norsk Hydro – a frequent company of concern in times of currency appreciation – deal with more expensive export costs, the potential exists for various sectors of Norway’s economy to become unsustainably expensive; mainly utilities and housing costs. Moreover, the weakening of traditional safe havens, like the Swiss franc (CHF), could place additional strain on this relationship, artificially driving the NOK higher due to flights from risk, but to the detriment of Norwegian industry, which, harshly enough, exports mainly to the euro zone (a double whammy to growth reduction if there ever were one).
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