Summary

The Norwegian economy is steadily recovering from a 2014’s oil slump-induced market shock, with most of the underlying macroeconomic indicators pointing upwards.
Despite this fact, and rising oil prices, the Norwegian Krone continues to fall in value versus the European currency with striking pace, reaching crisis-indicative levels.
We expect a return of investors’ attention to EUR/NOK fundamentals by Q1 2018 after the period of year-end thin trade and important central bank meetings in December.
We target a 9.3000 level by end of Q1 2018 under normal circumstances.

The Norwegian economy is generally in a good shape now, gradually recovering from a 2014’s oil slump-induced market shock, when its annualized GDP growth rate printed extremely weak readings as compared to the previous several years. Still, the Norwegian Krone in pair with the single European currency reached a level of 9.8000 in November 2017 – an unprecedented mark, previously touched only twice in history amid the global economic and financial crisis in 2008 and 2014’s oil crash. But the reasons for such strange behavior of the Norwegian currency have deeper roots.First, it should be emphasized that the Norwegian economy is indeed performing rather well with all leading macroeconomic indicators pointing upwards. The NIMA Manufacturing PMI for Norway in October 2017 increased to 54.5, up from 52.2 in January 2017 [Norway - Manufacturing PMI - Actual Data - Historical Charts]. The Norwegian business confidence index amounted to +2.3 in Q3 2017 versus +1.4 in Q1 2017 and extremely negative values throughout 2015 and 2016 [hereinafter, if not stated otherwise, all data come from TRADING ECONOMICS | 20 million INDICATORS FROM 196 COUNTRIES]. Consumer confidence increased even more drastically, from +1.1 in January 2017 all the way up to +17.3 in December 2017.CPI index decelerated in more than 2.3 times from 2.8% y/y in January 2017 to mere 1.2% y/y in October 2017. Weak inflation doesn’t allow for the Norges Bank to lift interest rates, which were progressively cut from 1.5% to 0.5% following the post-oil-crash economic woes. Moreover, some experts believe that Norway can even follow the case of other Scandinavian economies, e.g. Sweden and Denmark, where interest rates are on a negative territory, although the Norway’s central bank’s officials dismiss this option. General expectations are that the Norges Bank will not proceed with rate hikes before 2019. Other concerns, such as a cooling property market in Oslo, have only minor impact on the current economic situation, despite heavy media attention. The unemployment rate in Norway in September 2017 amounted to 4%, down from 4.2% at the beginning of the year, but still, it's rather high, judging from historical data. The Norway GDP Annual Growth Rate in Q3 2017 accelerated to 3.2%, which is the strongest pace of growth since 2014.

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