The Norwegian krone was among the very top performing
currencies in 2012 and the currency has started 2013 in similar style. The NOK
has spent January making hefty gains against the USD and GBP, though has given
away some ground to the EUR, which has rallied across the board in recent
weeks.
The Norwegian economy certainly still looks set to warrant
plenty of investment in 2013. With a budget surplus of 15% of GDP in 2012, the largest
of any AAA nation, Norway is a shining example of fiscal discipline against a
backdrop of soaring global debt levels. Norway’s debt is as safe from default
as can be.
The country’s booming oil and gas sectors will continue to
support Norwegian growth levels this year, while rising employment and wage
growth will also contribute to progress. That said, the latest unemployment
update from Norway showed a surprise rise to 3.5% but this is likely to be a
mere blip. The Norwegian manufacturing sector has suffered as a result of
waning external demand (from the eurozone) and a strong currency but rising
investment in the oil sector will more than compensate for this. Norwegian GDP
could be as high as 3.0% this year, which would surely be the strongest among the
G10 economies.
In terms of the Norges Bank’s monetary policy, firm
Norwegian growth over the past year has not translated into higher interest
rates thanks to very subdued inflation levels and a strong currency. Norges
Bank Governor Olsen has expressed concern over rising household debt levels and
rising house prices and there have been clear suggestions that a hike to the
current 1.50% interest rate is on the horizon; we are expecting a hike to 1.75%
in May.
We expect the NOK to outperform GBP, USD, SEK and most probably the EUR this year.
Richard Driver
Currency Analyst
Caxton FX
