According to an expectations survey, inflation expectations five years ahead among experts in the financial industry, the social partners and academia were virtually unchanged from the fourth quarter of 2008 to the first quarter of 2009. An indicator of inflation expectations in financial markets can be derived from the long-term forward rate differential between Norway and the euro area. Because of a higher inflation target in our country, this differential will normally be around ½-1 percentage point, depending on risk premiums in the bond market. The differential has been in this range in recent years, but has fluctuated somewhat since last autumn. BIS Review 37/2009  7  After a prolonged upturn both output and employment are falling in Norway. The turnaround had already occurred just over a year ago, but in the period to autumn last year, it appeared that capacity utilisation would gradually decrease to a normal level. As the global economic outlook deteriorated, it became clear that the slowdown in our economy would occur more rapidly and be more pronounced than envisaged earlier. In November, regional network contacts reported an abrupt and marked turnaround in activity. They now report that the labour supply is no longer a constraint on production. The enterprises in the network are expecting output and employment to fall further over the next six months. Unemployment has increased since autumn last year, but is still at historical low levels. Unemployment is projected to rise to 4 3/4 per cent at the end of the year.
Banks have become more vulnerable to distortions in the credit markets. Historically, our 4 banks primarily obtained funds through deposits by households and enterprises. In recent  1  Folketrygdfondet will manage the new Government Bond Fund. 2  The Government has increased the capital of Kommunalbanken Norway (the local government funding agency), it has increased the scope of GIEK (the central government export credit agency) and Innovation Norway, and has offered state loans to Eksportfinans Norway (the credit institution for export financing). 3  Figures for banks’ equity capital before 1918 are based on: Jan Tore Klovland (2007): “A reconstruction of the balance sheets of savings banks in Norway 1822-1875” and “A reconstruction of the balance sheets of commercial banks in Norway1848-1900” in Øyvind Eitrheim, Jan Tore Klovland and Jan F. Qvigstad (Ed.) (2007): “Historical Monetary Statistics for Norway – Part II” Norges Bank’s Occasional Papers, No. 38, Oslo. Statistics Norway is the source for figures from 1919 to 1995. Norges Bank is the source for figures from 1996. 4  Figures are taken from the sources in footnote 3 and Hege Imset Matre, H. I. (1992): Norske forretningsbanker 1848-1990: En tilbakeføring av forretningsstatistikken (Norwegian commercial banks 1848-1990). Report No 41 from the research programme Det nye pengesamfunnet. 2  BIS Review 37/2009  years, banks have borrowed in both domestic and foreign markets. When credit markets dried up, this proved to involve high liquidity risk for banks.