I believe many of those present here have a special interest in developments in the exchange rate, and will therefore discuss this in more depth towards the end of the address. The economic situation and the orientation of monetary policy The Norwegian economy is now in a cyclical upturn. Over the past three years, mainland GDP has grown by approximately 4½ per cent annually, and the strong growth has continued in 2007. In the first half of the year, annualised growth was close to 6 per cent, and even if GDP growth in the third and fourth quarters should be zero, annual growth will be well over 4 per cent. As the chart shows, there have not been four consecutive years with such strong growth since 1971. At the same time, productivity growth in the Norwegian economy has been strong, and the supply of labour has been ample. The growth capacity of the economy has therefore been high. Low interest rates, growth in public demand and in petroleum investment and vigorous international growth have resulted in high income growth in the household and business sectors. Moreover, low interest rates have made it more profitable to bring forward consumption. In addition to contributing to the increase in actual income, the sharp improvement in the terms of trade may have raised households’ income expectations. On balance, this has boosted demand for goods and services. So far, there are few signs of a slowdown in the Norwegian economy.
That is why today’s conference is conceived to bring together academic research and central bank practice. The conference structure reflects an understanding that the global financial cycle affects the euro area and its monetary policy, which in turn affects the financial cycle in Europe beyond the euro area. Therefore, the first session of the conference is on the current phase of the global financial cycle which is to a large extent driven by the US monetary policy. We recall from the 2007/2008 crisis how the financial disruptions originated and triggered a full-scale global crisis. The second session is focused on the euro area financial cycle, as influenced by the global financial cycle, and its implications for asset prices and financial stability. Since the ECB policies also shape the financial cycle in Europe outside the euro area through economic and financial channels, although divergences do exist, our third session is devoted to the financial cycle in the non-euro area EU member states. By way of example from Bulgaria, the BNB recent research and relevant estimates for the local financial cycle indeed show that we are currently in the upward phase of accumulation of cyclical risk. We have, correspondingly, decided to activate and then raised the rate of our countercyclical capital buffer. Turning to actual policy reactions in dealing with financial cycles, our conference ends with a panel where Governors will share with us their views. Dear colleagues and guests, In conclusion, let me sum up my main points.