The depreciation of the Norwegian kroner has made the famously expensive Nordic country a more affordable destination for tourists, increasing spending and benefiting local businesses.
Nordic tourism has risen significantly in the last few months, as the Norwegian krone continues to weaken against most major global currencies.
The Norwegian krone/ US dollar pair has already fallen about 6.50% since the beginning of the year, trading at $0.091 at the time of writing. Similarly, the Norwegian krone/Euro pair dipped around 5.45% since the beginning of January, trading at €0.084 at the time of writing.
This has led to a surge in tourism, especially from countries like China, where Norway is seen as a typically expensive country. These visitors are now also spending considerably more than usual on Norwegian luxury clothing and accessories stores such as Moncler and Høyer.
This has led to Norway, along with other Scandinavian countries such as Finland, Denmark and Sweden all focusing more on how to cater better to Chinese tourists, with joint tourism initiatives, better flight connections and more payment options.
On the other hand, for Nowegians travelling and holidaying abroad, the weaker krone means increased prices. The falling exchange rate has also caused issues for local Norwegian retailers who buy international brands, as they have become much more expensive to purchase.
Why is tourism in Norway increasing?
According to Statista, in 2024, the travel and tourism market in Norway is estimated to see a revenue of $4,682.0m (€4,291m) in 2024, with an expected annual growth rate of 3.03% every year from 2024 to 2029. If so, the value of the market could potentially touch $5,436.0m by 2029.
Apart from China, Norway is also seeing a growth in visitors from Germany, the United States, Sweden, the Netherlands and Denmark, with summer, between June and August being an especially busy time. Activities such as kayaking in the fjords, hiking and camping are very popular during this time.
Winter sees a steady flow of tourists aiming to see the Northern Lights, although temperatures are much harsher. Other activities such as skiing are also on the rise during this time, with Norway also seeing an increase in adventure tourism and offbeat experiences and activities such as glacier exploration.
Currently, package holidays are some of the most popular options, with online sales also surging. Norway’s increased investment in sustainable tourism has also been paying off, as nature lovers and environmentally conscious tourists increasingly opt for activities like whale watching, polar bear expeditions and bird watching.
With a falling krone, these typically expensive tourism and adventure activities are now within reach of a number of travellers, even those from lower-income countries.
This is also supported by the Norwegian government’s strong focus on environmental and cultural heritage preservation.
Why is the Norwegian Krone falling?
The NOK is sensitive to oil and gas prices, given how much Norway’s economy depends on this sector. As such, lagging oil industry share prices, as well as the petroleum industry shrinking as a whole in the country have gone a long way in impacting the NOK.
Furthermore, Norway has recently introduced more stringent taxes, such as a higher wealth tax and an increased exit tax for billionaires considering leaving the country. The country may also bring back inheritance tax.
As such, more investors are being discouraged from investing in the country, with several wealthy Norwegians already having left for more beneficial tax jurisdictions such as Switzerland. This has also contributed to a falling krone.
Regarding why the krone has weakened, Kyle Chapman, forex markets analyst at Ballinger Group said: “The krone’s recent weakness is down to two main factors. The first one is a rapid deterioration in investor risk appetite, and the second one is quicker-than-expected falls in Norwegian inflation.
“The Norwegian economy is small and open and the krone is typically the least liquid and most volatile currency in the G10. That gives it a close correlation to risk appetite levels, and global developments tend to be the biggest factor in the exchange rate.
“All the relevant risk indicators are pointing the wrong way for the krone right now. Equities are being sold off, high-yield credit spreads are at their widest this year, and a flight to safety has catapulted currencies like the yen and the Swiss franc. There are several factors at play here, not least US election uncertainty, China growth worries, an unwind of the carry trade and weak Q2 earnings reports.”
Chapman also points out that investor belief that the US Federal Reserve may have made a mistake by not cutting interest rates yet has also led to widespread sell-offs in the last few days. In turn, investors have been quick to take capital out of Norway and channel it into more stable assets.
He also highlights that the unexpected drops in inflation recently have also contributed to the Norwegian Krone selloff, despite the Norges Bank insisting that there were still upside risks to inflation and hinting that it may not slash interest rates this year.
Coming to the future of the Norwegian krone, Chapman said, “Concerns about a non-linear labour market deterioration in the US are well-founded, but the market reaction is excessive. For me, talk of intermeeting cuts and a Fed emergency landing on the back of a single data point is a clear signal that markets are overly spooked. Once the dust settles, and markets stabilise, the krone should be able to recover to around the 11.80 level in August.”
Norges Bank governor, Ida Wolden Bache, said in a speech made at the BI Norwegian Business School in November last year, “Norges Bank does not have a policy target for the krone. The exchange rate is still something that we are concerned with because of its importance for inflation and activity in the Norwegian economy. A tighter monetary stance will normally lead to a stronger krone.”
Regarding how the Norwegian krone might behave in the coming months, Bache says, “Looking ahead, climate change and the energy transition are important trends. Activities in the oil sector will be scaled back sooner or later, which may be accelerated by a more stringent climate policy. In isolation, a scaling back of the petroleum sector and a possible loss of oil and gas revenues could point to a weaker real krone exchange rate.
“Some studies find that increased transition risk has already contributed to a weaker exchange rate of countries that are major petroleum exporters. On the other hand, a large share of our petroleum wealth has already been converted into financial reserves. External balance is thus less dependent on petroleum revenues than it would otherwise be. This pulls in the direction of a smaller effect on the real exchange rate.”