If economic developments are broadly in line with projections, a fiscal stance in line with the fiscal rule could result in a lower interest rate and a weaker krone than projected. The Government has estimated that the annual return on the fund will be around 4 per cent over time. The average real return since the management of the fund began is now 2.7 per cent, up from just 1 per cent a year ago. The figure reflects the recent recovery from the sharpest deterioration in capital markets since World War II. With an unchanged risk profile, the average return will most probably move back towards 4 per cent after a period. The investment strategy of the fund is built on its long-term investment horizon and substantial size. In 2009, we benefited from the long-term investment horizon. The return on the fund was 25.6 per cent in 2009, which is the highest return ever recorded. The fund’s long-term investment horizon enabled it to buy equities and maintain its positions in corporate bonds when other investors were forced to sell assets at low prices during the financial crisis. In June 2007, the Ministry of Finance decided to increase the allocation to equities from 40 to 60 per cent. This was achieved over the two following years when equities for more than NOK 1 trillion were purchased. The long period of phasing in purchases was profitable as the fund was able to exploit falling equity prices during the financial crisis.
According to the Bank’s regional network, reduced use of overtime hours, partial lay-offs and reduced working hours among part-timers have resulted in lower average working hours. Moreover, increased sickness absence has made a contribution. Output growth is expected to increase gradually through 2010, while growth in the number of hours worked shows a relatively small increase. As a result, employment will gradually become more consistent with the level of output, and productivity will rise further through 2010. Compared with previous downturns, productivity growth remains weak. Owing to a fall in labour force participation, labour force figures were lower at the end of 2009 than at the beginning of the year in spite of underlying growth in the working-age population. Some people exit the labour force or choose not to enter the labour force when labour demand falls. Unemployment continued to rise in the latter half of 2009, but at a far slower pace than earlier in the downturn. Registered unemployment is projected to remain at about today’s level to the end of the year. The Technical Reporting Committee on Income  BIS Review 38/2010  3  Settlements estimates annual wage growth at 4.1 per cent in 2009. We expect wage growth to show a further decline in 2010. The uncertainty facing exposed industries is still considerable and wage growth among trading partners is low. A reserve of foreign labour and persons who have temporarily exited the labour force, and who may rapidly return, is probably pulling down wage growth.