The participation of banks in the debt guarantee schemes is voluntary, and the very limited use of these guarantees may reflect a decline in the demand for credit and/or the desire of the banks to continue deleveraging their balance sheets. It is, however, important to ensure that other constraining factors are addressed, for example that the disincentives associated with the provision or pricing of these debt guarantees are promptly addressed, so as to help banks finance additional lending to the private sector. Possible further measures A relevant question is whether the tight financing conditions and the continuing stresses on the banking system require further measures by governments and central banks in order to help revive the extension of bank credit to the economy. The answer regarding the need and the nature of potential further measures depends on the causes or determinants of the prevailing financing conditions and on the structure of the financial system. To the extent that (i) financial market stresses, (ii) the deleveraging process, (iii) uncertainty about the economic outlook and about potential further bank losses, and (iv) low confidence impair the functioning of the credit and bank funding markets and the transmission of the effects of monetary policy, “non-standard” measures aimed at reducing funding uncertainty and enhancing the functioning of the credit market and, consequently, the monetary policy transmission mechanism, may represent possible courses of action.
This development is primarily demand-driven, fuelled by strong growth in the global economy, and in emerging market economies in particular. More recently, oil prices have increased further as political unrest in North Africa and the Middle East has led to uncertainty regarding future oil supply. Norwegian manufacturing industries are also benefiting from high commodity prices. Increased profitability for many firms and rising real disposable income may boost the demand for labour. With the prospect of continued high commodity prices and falling import prices, Norway’s terms of trade should hold up in the period ahead. BIS central bankers’ speeches  9  This, together with a tight labour market, may fuel wage growth. Looking ahead, cost inflation is most likely to edge up. On the other hand, high net immigration may have a dampening impact on wages. In 2010, the population rose by 62 000, an increase of 1.3 per cent. Low unemployment and a relatively high wage level have made the Norwegian labour market attractive to job seekers of foreign origin. 10  BIS central bankers’ speeches  Going forward, continued high labour immigration is expected to result in solid growth in the labour force. At the same time, improved terms of trade will led to higher activity in the Norwegian economy. Capacity utilisation is expected to revert to a normal level in the second half of 2011. In the coming years, output in the mainland economy is expected to increase at an annual rate of 3–4 per cent.