The krone has traded at near three-year lows for much of the last three months (daily chart, next page). A partial recovery was staged in the first half of September, but that petered out and the currency is now worth just below Nkr8.10/euro. Disappointing Q2 data (where the q-o-q increase in real GDP was just 0.2%) and a dovish central bank partly explain the weakness in the currency and doubts about its status as a ‘safe-haven’ investment in Europe. In manufacturing, the PMI fell from 53.2 in August to 52.3 in September and whilst the data still reflects modest growth, the results are somewhat disappointing compared to neighbouring Sweden where an equivalent reading of 56.0 was recorded. The central bank, whilst concerned about the loss of steam in the economy and build up of inflation, which was 3.2% (y-o-y) in August, but fell to 2.8% in September, has resisted calls to loosen monetary conditions, opting to keep the key policy rate unchanged at 1.5% last month. A new government has been formed after the opposition Conservative Party secured the most votes at elections held on September 9. A coalition with the populist Progress Party was announced on October 7 and Ms Erna Solberg will be sworn in as Prime Minister on October 16. Key policy changes include increased funding for transport and communications and a boost to private enterprise through reduced tax and bureaucracy. The new centre-right coalition, which forms the most right-wing administration in post-war Norway, is considering changes to the country’s US$750bn oil fund.
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