Another important factor is that productivity growth in the US is expected to secure sound profit trends over the longer term, with the decline in corporate investment turning up slightly next year. Although business and industry have been sheltered so far from the slowdown in the world economy, the Norwegian economy may gradually be more strongly affected. Slow growth in the world economy may lead to lower demand for Norwegian produced goods and curb the pressures in the Norwegian economy. In addition, slower growth in the world economy may push down imported price inflation, which may imply that price inflation will be lower than we have projected. Our forecasts provide an indication of the scenario we consider to be the most likely, given that key variables such as interest rates, the exchange rate, public demand, wage formation and oil prices are in line with our assumptions. If these variables deviate from our assumptions, the real economy and nominal developments may also show a different path. BIS Review 74/2001  13  The Norwegian economy is balancing on a tightrope. It will not take much to throw the economy off balance. While the overall global situation suggests that consumer price inflation may be somewhat lower than anticipated in the period ahead, the domestic economic situation points in the opposite direction. Growth in domestic labour costs may turn out to be higher than estimated.
In the US, the slowdown in growth has been more pronounced than expected by most observers when the first signs of a turnaround emerged last autumn. Industrial output has declined over the last 10 months and business investment has shrunk by almost 14 per cent, annualised, in the second quarter. Moreover, the impact on Europe and the emerging economies in Asia has been substantially greater than expected. The shift in perceptions of the outlook is reflected in the estimates from Consensus Forecasts. Since the beginning of the year, growth forecasts have been revised downwards by 2 percentage points in Japan, 1½ percentage points in Germany and 1 percentage point in the US. Not since 1974 has GDP growth been below 2½ per cent in all three countries. Growth among our trading partners has been revised downwards by 1 percentage point to a little less than 2 per cent, which is the lowest rate recorded since 1993. Growth forecasts for 2002 have also been adjusted downwards somewhat, but growth is still expected to pick up next year. However, there is substantial uncertainty associated with these forecasts. 12  BIS Review 74/2001  The forecasts are to a large extent based on the assumption that household consumption will continue to fuel growth in domestic demand, as has been the case in the US and Europe so far this year. This is expected because of the solid financial situation of the household sector in most industrial countries after many years of rising employment and real wage growth.