The slack appears to be concentrated largely in the labour market, as survey measures indicate that businesses are operating at close to normal capacity (Chart 7). Broadly speaking, we will be aiming to absorb that slack over the next two to three years, while keeping inflation close to the 2% target. Of course, output can rise by more than 1–1½% before slack is eliminated because supply generally rises over time as well as demand. The extent and pace of any rebound in productivity will consequently be crucial in deciding how quickly slack gets absorbed. In our latest projections (Charts 8 and 9), conditioned on prevailing market interest rates, the central path for inflation remains close to the target throughout, while the margin of slack is diminished, though not quite eliminated, by the time the forecast horizon is reached. That market curve implies a first rise in Bank Rate in the spring of 2015, though I should stress that we are likely to learn a lot between now and then about the pace of the recovery, the amount of slack and the evolution of supply, and the impact on costs and prices. So I would counsel against getting too hung up about the precise date at which Bank Rate first rises.
Funding in securities markets is too expensive for the smallest enterprises. The securities market plays less of a role in Norway compared with other European countries and the US. The market for equity capital is particularly small in Norway. Norwegian companies often rely on foreign funding for new projects. The thin market for securities capital in Norway may be an obstacle to the development of the business sector. This means that it is essential that the banking system function smoothly. When they function, the strength of financial markets lies in their transparency and adaptability. Capital which is tied up in unprofitable activity can be freed up for other activities. Competition for capital contributes to creative destruction. 13  BIS Review 14/2000  Chart 15  Structural changes also take place within individual companies. One example is NOKIA. Thirty years ago, the forerunners of the world’s leading producer of cellular telephones were primarily producing telephone cables, rubber boots and tyres. At that time, the electronics division accounted for 3% of NOKIA’s turnover and employed 460 persons. However, research and product development led to a wider range of products. In 1988 NOKIA was the third largest producer of television sets in Europe and the largest producer of cellular telephone equipment in the Nordic area. NOKIA experienced a deep crisis in the beginning of the 1990s, as did many Finnish companies. NOKIA decided to concentrate on telecommunications. The split-up of the group was initiated from within the company. Non-core activities were spun off and sold.