Norway’s weakening currency, the krone (NOK), is turning out to be a double-edged sword for the country.
On one side, it’s driving a surge in tourism, attracting visitors who once found the country prohibitively expensive. On the other, it’s bolstering seafood exports, even as the currency’s decline raises concerns about the broader economy.
This complex scenario highlights how Norway’s financial landscape is evolving under the weight of currency depreciation.
Currency depreciation boosting tourism
Historically known as one of Europe’s most expensive travel destinations, Norway is now seeing a significant influx of tourists, thanks to the weakened value of its currency.
Since the start of 2024, the Norwegian krone has depreciated by 5.85% against the US dollar and 4.84% against the euro.
This trend, which began in 2014 with the plunge in crude oil prices, has continued to make Norway more affordable for international travelers.
Development in the number of tourists’ hotel guest nights relative to changes in the value of NOK currency
Source: Taylor & Francis
Countries such as China, the United States, Germany, the Netherlands, and neighboring Sweden and Denmark are now sending more tourists to Norway.
The appeal of Norway’s natural wonders, from the majestic fjords to the mesmerizing Northern Lights, is now more accessible to a wider range of visitors.
According to Statista, Norway’s travel and tourism market is expected to generate $4,682 million (€4,291 million) in 2024. This market is projected to grow at an annual rate of 3.03% from 2024 to 2029, potentially reaching a value of $5,436 million (€4,977 million) by 2029.
The weakening krone is a key factor in this anticipated growth, making Norway a more attractive destination for budget-conscious travelers.
Norwegian seafood exports surge
The depreciation of the krone has also had a significant impact on Norway’s seafood industry, a vital component of the country’s economy.
In July, Norwegian seafood exports reached NOK 13 billion ($1.18 billion/€1.08 billion), marking a 6% increase compared to the same period last year.
This surge in export value comes despite a sharp decline in salmon prices, which would typically put pressure on revenue.
Christian Chramer, CEO of the Norwegian Seafood Council, attributed this growth primarily to the currency effect.
“We see that a sharp decline in salmon prices was compensated by volume growth, and in the end, it is the currency effect that adds value,” Chramer explained.
Norway’s top markets for seafood exports in July included Poland, Denmark, and the Netherlands, with the country exporting to 111 nations, one more than in July last year.
The value of Norwegian seafood exports reached an all-time high in 2023, with NOK 172 billion worth of seafood shipped out of the country. Chramer noted that the krone’s devaluation contributed nearly NOK 15 billion to this total, underscoring the currency’s impact on the industry.
Why is the Kroner falling?
Norway’s krone, once a symbol of economic strength, has seen a significant weakening over the past decade.
The currency’s decline is primarily linked to the country’s heavy dependence on oil and gas exports.
As global oil prices have dropped, so too has the value of the krone.
Additionally, global economic uncertainties and risk aversion have led to a sell-off in the krone, which is considered one of the most volatile currencies among the G10 nations.
The rapid decline in inflation has further weakened the currency, signaling that the economy may be cooling faster than anticipated and affecting investor confidence.
Norway’s central bank, Norges Bank, does not have a policy target for the krone, but it recognizes the currency’s importance for inflation and economic activity.
Governor Ida Wolden Bache has emphasized that a tighter monetary stance typically strengthens the krone, but the current environment presents challenges.
Analysts are not particularly optimistic about the krone’s short-term prospects.
Commerzbank’s FX strategist Volkmar Baur noted that while a restrictive stance from Norges Bank could boost market confidence, significant gains for the NOK are unlikely in the current risk-averse environment.
Francesco Pesole, an FX strategist at ING, echoed this sentiment, acknowledging the difficulty of predicting a recovery for the krone amid high market volatility.
However, Pesole suggested that a correction in the EUR/NOK exchange rate might be possible, with a greater rebound expected in the NOK compared to the Swedish krona (SEK) due to differing monetary policies.
While a return to stronger levels remains uncertain, the krone’s depreciation is currently providing a temporary boost to sectors like tourism and seafood exports.
Yet, the broader economic implications of a weak currency continue to cast a shadow over Norway’s financial future.
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