Financial stability Developments in real economic variables are mirrored in credit markets. In recent years, household income has shown solid growth, and household confidence has been high. However, corporate earnings have been low, and until recently enterprises have primarily focused on enhancing efficiency. Credit developments are giving ambiguous signals to our interest-rate setting. Growth in household borrowing is high, but enterprises have reduced debt. The change in the breakdown of credit may have been amplified by banks’ increased eagerness to extend credit to households after a period of losses on loans to the business sector. Some reports from our regional network indicate that are some liquidity constraints for the business sector in some areas. According to reports from Northern Norway, banks seem to have become more cautious in extending loans to the business sector. Banks are requiring higher levels of capital and earning capacity. Total credit is expanding broadly in line with normal growth in nominal GDP. Developments in credit to enterprises shadow developments in their investments. Low credit growth indicates that corporate investment in the mainland economy has still not picked up even though there seem to be signs that the decline is levelling out somewhat. Norwegian households generally finance their mortgages at an interest rate that follows the short-term money market rate. Floating interest rates tend to vary widely over time. The interest rate level is very low at present, and long-term investments cannot rely on this interest rate spanning the life of a housing loan.
That is why the ONS publishes preliminary estimates of key data a few weeks after the month or quarter to which they refer, derived from sub-sets of their overall samples. As time passes, more information is processed and estimates are revised, making them progressively more accurate. But the fact remains that the data that give the timeliest read on economic activity are also the ones that are measured least accurately. So there is always a risk that the official data will give a misleading view of the current economic situation. Reading the economy is difficult And indeed there have been times when economic policy has been led astray by misleading data. For example, in the second half of the 1980s economic policy was founded on the view - indicated by the official data at the time - that the pace of recovery from recession had been relatively modest, and there was considerable spare capacity in the economy. But a sequence of data revisions proved that view to be wrong. Nigel Lawson, who was Chancellor at the time, recalled that revisions to the trade figures in 1988 made it clear to him that “demand in the economy was pressing against the limits of capacity to a much greater degree than I had previously realised”. The GDP figures were also heavily revised. For example, growth in 1986 was initially estimated at 2.4% (in early 1987) - close to economists’ view of trend growth. Three years later in 1990 - this had been revised up to 3.6%.