Companies and importers may have preferred to observe changes in the exchange rate over time before changing their selling prices. After several expensive wage settlements and a short period of a strong krone had weakened profitability in the Norwegian business sector, the depreciation of the krone contributed to curbing the decline in activity and employment. The downturn was short-lived. Together with private consumption and fixed investment in the petroleum sector, traditional exports were an important factor underlying growth in the early stages of the recovery that started in the first half of 2003. Prices for many of our main export goods have risen as a result of strong growth in new markets. However, growth in Norway’s total exports excluding oil and gas is lower than import growth among our trading partners. Mainland fixed investment has gradually become an important driving force in the upturn. Investment has picked up in most industries and growth was stronger than expected towards the end of 2004. Norges Bank’s regional network has registered rising investment in all industries. Petroleum investment in particular appears to be growing at a faster pace than projected. This may continue to boost mainland output. In the last few years, household demand has been underpinned by low interest rates, high real wage growth and higher asset prices. According to preliminary national accounts figures, private consumption expanded by 4.3 per cent last year. House price inflation has slowed somewhat, but remains high. In 2004, housing starts were the highest in several years.
In the construction industry, the labour market is tight and enterprises are making use of foreign labour to some extent. The supply of skilled labour is, however, a constraint on growth potential. Signals from service industries also indicate that the supply of labour is becoming more limited. The general level of investment in this region is relatively stable. Investment activity in the public sector appears to be somewhat lower in 2005 than in 2004. In manufacturing and services, there are signs of increased investment activity. Tender prices are rising slightly in the building and construction industry as a result of increased costs and a higher level of activity throughout the country. Prices have risen slightly in manufacturing and service industries. In retail trade, prices have changed little or remained unchanged. Profitability is improving due to increased activity, but there are no major changes for small and medium-sized enterprises. In the approved budget for 2005, the structural, non-oil deficit increases compared with 2004. It therefore appears that fiscal policy will provide some stimulus to growth this year. In the National Budget for 2005, underlying spending growth over the central government budget was estimated at 5.2 per cent, which is somewhat lower than the previous year and somewhat lower than estimated nominal growth in mainland GDP. As from 2006, it is assumed that nominal growth in central government expenditure will be approximately the same as nominal growth in central government revenues and that the real tax level will remain unchanged.