4) The Norwegian economy at a turning point The Norwegian economy continued to expand at a relatively strong pace in 1998, albeit somewhat more moderately than in previous years. In Norges Bank’s December Inflation Report, the central bank projected a period of slower growth. Several years of robust growth have contributed to high capacity utilisation. Labour shortages and high wage growth will have a dampening impact on growth in the years ahead. Forecasting is a challenging enterprise at a stage when the economy is nearing a turnaround. It is difficult to pinpoint the timing and the amplitude of the turnaround. However, evidence now suggests that Norway is entering a period of slightly weaker growth. The international environment has led to slower growth in demand and lower prices on the world market. This is weakening profitability in the export sector in Norway. In addition, the wage settlements have increased business costs, which will increase the need for enhancing the efficiency of enterprises. Reduced earnings and higher interest rates will have a dampening effect on business investment. The extraordinarily high level of oil investment recorded in recent years has been expected to fall for some time. The drop in oil prices may lead to more pronounced cyclical fluctuations. Restructuring, streamlining and cost cuts in the oil industry will also affect employment. The local government sector, where employment has increased sharply during this cyclical upturn, placed itself in a very difficult situation during the last income settlement.
Recent examples include the volatility of technology stocks, the growing size of telecom debt or the problems of the Japanese insurance industry. Much of the work is published in the Bank’s Financial Stability Review which is intended to promote public understanding of financial stability. The most important part of the FSR is an assessment of the global conjuncture and potential risks to the UK financial system. Emerging market economies have attracted particular attention in recent years. Not only were these countries the source of the most recent shock to the international financial system in 1998 but, since that time, they have been a major focus in international groups such as the FSF. The work to strengthen the financial system has centred as much on crisis prevention as crisis resolution. Under crisis prevention, the accent has been on improved disclosure, establishing new international standards for transparency for governments and private sector firms in the publication of economic and financial data. In terms of crisis resolution, discussion has turned to the role of the official sector, and the IMF and World Bank more particularly, in helping countries that get into difficulty. Many of the crises in emerging market economies have been marked by a sudden withdrawal of private sector capital, including outflows to private sector creditors of official funds intended to stabilise the position and reverse this capital flight.