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MONEY

How the weak Norwegian krone will affect travel to and from Norway

Norway's krone has not strengthened despite several factors which should work in its favour. The currency's struggles will affect travel to and from Norway.

Published: 15 April 2024 11:34 CEST
Pictured is a bundle of Norwegian kroner,
Norway's weak krone is likely to have consequences for travel this summer. Pictured is a bundle of Norwegian kroner. Pictured is a bundle of Norwegian kroner. Photo: welcomia GettyImages.

Norway’s weak krone continues to struggle despite a recent rally in oil prices and another interest rate hike at the end of 2023.

Both factors impact the Norwegian krone’s strength. Oil and gas make up a large proportion of Norway’s economy, and high interest rates make the Norwegian krone more attractive to investors.

It’s also unlikely the currency will recover to anywhere near previous levels anytime soon, according to experts.

“We cannot promise that the krone exchange rate will strengthen before the summer,” chief economist Harald Magnus Andreassen at Sparebank 1 Markets told broadcaster TV 2 recently.

Kjersti Haugland, chief economist at DNB Markets, told business news outlet E24 that the weaker krone was the new normal for the currency. She said that while it was much stronger ten years ago, it was due to a strong economy, stable interest rate and booming oil trade.

“Now it is no longer like that. We, therefore, do not believe that the current rate is completely wrong,” she said.

The krone has weakened against almost all major currencies, meaning that wherever one travels, it will likely be more expensive to travel abroad than before.

At the time of writing, one euro was trading for 11.64 kroner, a pound was equivalent to 13.63 kroner, and a dollar cost 10.92 kroner.

Dane Cekov, senior economist and currency strategist at Nordea Bank, told TV 2 there could be a significant fluctuation.

“I think you have to be prepared for major fluctuations towards the summer, and not least during the summer holidays themselves,” he said.

The currency strategist said that travellers should do their best to round up, and then they may be pleasantly surprised with the exchange rate they receive.

For those travelling in the eurozone, he recommended rounding up to 12 kroner for one euro.

Cekov said the Balkan peninsula could be an attractive destination for those who want their money to go further this summer. This is because, despite some countries in the region using euros, prices were lower than other eurozone countries.

The currency strategist also suggested Turkey, although the country had been subject to hyperinflation in recent years.

When travelling to Norway, travellers can expect a reasonable exchange rate. This means the country will be cheaper than it would have been if the krone had remained strong.

For example, if a hotel room costs 1,000 kroner per night and you are paying in euros, the cost is around 85 euros per night. Meanwhile, three years ago, a hotel room costing 1,000 kroner would’ve been equivalent to around 100 euros.

This hotel room would have been equivalent to 86 pounds and 120 dollars in 2021, compared to 91 dollars or 73 pounds today.

Another example would be a meal in a restaurant. A dish costing 250 kroner would be equivalent to 21 euros today but was equivalent to 25 euros three years ago.

At today’s exchange rate, the same meal would cost around 18 pounds, compared to 21 pounds in 2021. Similarly, the same dish would have cost 29 dollars three years ago but closer to 23 dollars today.

You can use tools online like historical currency calculators and estimate how much cheaper a trip to Norway has become over time. 

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POLITICS

Four key things to know about Norway’s revised budget for 2024

The revised national budget was unveiled by the Norwegian government on Tuesday. Here are the key takeaways you need to know about the fiscal plan. 

Published: 14 May 2024 12:50 CEST
Four key things to know about Norway's revised budget for 2024

The government continues to tap the oil fund for public spending 

The current government isn’t the first to use the country’s oil and gas wealth to cover public spending costs. However, the revised budget will take public spending drawn from the oil fund close to the limit. 

Subsequent governments have limited themselves to using 3 percent of the value of the sovereign wealth fund where Norway’s oil and gas revenues are invested to top up public spending. 

The extra 9 billion kroner the government plans to spend from oil revenues will bring the total spending from the fund to nearly 419 billion kroner, which equates to around 2.7 percent of the fund’s value. 

This also means that the use of oil money in Norway will be 34 billion kroner higher this year than last year. 

Norway’s finance minister, Trygve Slagsvold Vedum, said that staying under the 3 percent threshold was important for the government. 

“It has been important that we are now under the action rule, even though we are making a heavy defence and security lift. The oil fund must be a generational fund,” he said. 

However, some analysts have previously suggested that the 3 percent limit is too generous and could deplete the fund. 

The increase in oil spending comes after a couple of cautious years where the government tried to limit spending from the fund to curb inflation. 

READ ALSO: Could Norway’s 1.3 trillion dollar oil fund run dry? 

Significant increase in defence spending 

The revised budget’s main focus is increased defence spending. The Norwegian Armed Forces will receive around 7 billion kroner more in defence spending as part of the revised national budget.

In the months leading up to the revised budget, PM Jonas Gahr Støre said that Norway would hit the NATO “two percent target”. 

The two percent refers to member countries allocating at least two percent of their GDP to defence spending. 

Some 2 billion kroner will increase immediate operational capability, while 5 billion would be spent on a long-term defence plan. 

The cost of living increases to ease, but interest rates to remain high

The Norwegian government has noted that the economy had outperformed its expectations and forecasts from last autumn when the initial budget was presented. 

Furthermore, unemployment has remained low at 1.9 percent and the government expects this to rise to 2 percent during the rest of 2024. 

It also expects the consumer price index to rise by 3.9 percent for 2024. The good news for consumers is that a real wage rise, meaning salary increases outpace the cost of living, is looking more likely as the year progresses. 

Looking ahead to 2025, inflation is expected to slow to 2.8 percent. 

Overall, the government expects the mainland economy in Norway to grow by 0.9 percent this year. 

Despite the optimistic outlook from the government, the figures are unlikely to move the needle regarding interest rate cuts. 

Norway’s central bank has brought the key policy rate to a 16-year high of 4.5 percent to curb inflation, and it isn’t expected to cut rates until December at the earliest. 

“Today’s budget gives no reason for Norges Bank to change the interest rate plans, which now point towards an interest rate cut in December,” DNB’s chief economist Kjersti Haugland told public broadcaster NRK.

The government doesn’t have a majority for its budget 

The most interesting side plot of every budget and revised budget is that the minority coalition comprised of the Labour Party and the Centre Party will rely on the support of the Socialist Left Party to get majority support for its proposals. 

This means the budget’s contents usually change throughout negotiations between the government and its budget partner. 

The Socialist Left Party has said it will advocate for an increase in the child benefit for the oldest children and a new tax on oil companies that would fund investment in offshore wind. 

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