In NOK - purchasing power parity  US Norway Switzerland Ireland Denmark Iceland Canada Netherlands Austria Australia Germany Finland Sweden 0  100000  Sources: OECD and Norges Bank  200000  300000  The large cash flows from petroleum activities are reflected in official income figures. Measured by GDP per capita, Norway ranks high in the statistics. These figures do not, however, provide an accurate picture of value added. When calculating GDP and national income, the cash flow from petroleum activities is measured in the same way as all other income. Extracting oil and gas from the seabed is measured in the same way as all other production. This means that Norway’s income is overestimated. Oil and gas represent wealth under the seabed. When oil and gas are sold, this wealth is invested abroad. This transaction does not in itself generate income, even though it is posted as income in the national accounts. The income is not equivalent to the entire cash flow, only to the return on this wealth. Chart 14. Adjusted GDP per capita in 2000 In NOK - purchasing power parity  US Switzerland Ireland Denmark Iceland Canada Netherlands Austria Australia Norway Germany Finland Sweden 0  100000  200000  300000  Sources: OECD, Ministry of Finance and Norges Bank  A more accurate picture of Norway’s income is obtained when GDP is adjusted for the transfer of petroleum wealth to financial investments abroad.
However, towards the end of the upturn the economy was facing labour shortages, higher wage growth and a sharp increase in household consumption and debt. Interest rates had to be kept at a high level in Norway. Chart 9. Cyclical divergence Short-term interest rates in the US and Norway 10  10 8  Norway  8 6  6  4  4  US 2  2  0  0 1995  1996  1997  1998  1999  2000  2001  2002  2003  Source: EcoWin  The turnaround abroad took place two years ago, but the Norwegian economy continued to show a high level of activity. This led to a widening of the interest rate differential against other countries. The main explanation for the wide interest rate differential is not that interest rates are high in Norway, but that interest rates are at a historic low abroad. Interest rates in the US have not been at such a low level since the 1960s. 1  Measured by the monthly average of the import-weighted exchange rate against 44 countries, the krone was at its weakest level in May 2000 since May 1994. Measured by the monthly average of the trade-weighted exchange rate index, the krone was at its weakest level in May 2002 since the series was started in January 1971. Measured by both indices, there were a few days in autumn and winter 1998 when the krone was weaker than in May 2000.