Up to autumn 2008, it appeared that capacity utilisation in the Norwegian economy would most likely decline to a normal level, inflation would stabilise around 2½ per cent and the key rate ahead could be held at what we consider to be a normal level – between 5 and 6 per cent. But the outlook was regarded as uncertain. Commodity prices rose and pushed up inflation in many countries. At the same time, wage growth in Norway had become high and productivity growth was slowing. On the other hand, the financial turbulence, if it gained momentum, could have a severe impact on the global economy and our exports. Then, in autumn 2008, the turbulence led to a synchronised financial and real economic crisis in virtually every country in the world. As a result, output and employment are falling, and Norway is no exception. The way forward Since then, the authorities in many countries have shown that they are prepared to use powerful tools to fight the crisis, but financial markets are still under stress. The crisis of confidence and credit rationing are leading to a decline in output. Corporate earnings are falling across the board and the number of unemployed is rising, prompting new rounds of losses on securities and in banks’ books. Every week there is a news story conveying the impression that the action being taken is not enough to stave off the downturn. But the measures being implemented are indeed having an effect.
This is an important point of departure, but we have now presumably learned that imbalances and risk arise when large countries do not sufficiently take into account that their own choices also influence those of others. The International Monetary Fund (IMF) must be given a more important role. The Fund must enhance its surveillance activities and its advice must be acted upon to a greater extent. However, this probably requires changes in the IMF’s governance structure. Countries that are now gaining in economic strength are seeking greater influence. The IMF must also improve its reputation in these countries. Government wealth and saving International capital markets have been a boon to Norway. We drew on borrowing opportunities abroad when the petroleum industry was being built up. We did the same in order to expand welfare schemes and to finance the countercyclical policy of the mid-1970s and the early 1990s. National oil and gas resources are now converted into equities and bonds abroad. Other small industrial countries are also making active use of global capital markets. Our neighbouring country Sweden has recorded large balance-of-payments surpluses. 8  18  G20: group comprising 19 countries and the EU. Member countries are among the world’s largest economies and include members of the G7. BIS Review 16/2009  Switzerland has a high level of saving and a recurring surplus. Australia, on the other hand, has been able to record a deficit since 1975. This year we are celebrating the works of the Nobel Prize-winning author Knut Hamsun.