Now, interest rates are believed to have reached their lowest level and are expected to remain at 1 per cent until the end of 2003, with only a gradual rise thereafter. Interest rates were also expected to increase markedly in  2  BIS Review 50/2003  Europe in summer 2002. Instead, interest rates were also reduced here and expectations were revised downwards substantially. The lower projections for growth reflect the effect on the world economy of a number of negative shocks, such as the war in Iraq and the SARS outbreak. It may have taken longer than first expected to correct imbalances generated by overoptimism in sectors such as the IT industry. High oil prices may also have contributed to restraining growth. The combination of low international interest rates and weak cyclical developments contributed to high interest rate differentials against the krone and the strong exchange rate. Activity in the global economy has picked up from the low level prevailing last winter, primarily reflecting high growth in the US and some Asian economies, including Japan. Recent statistics show that the annual rate of GDP growth in the US was 7.2 per cent in the third quarter of 2003. Strong growth in private consumption and a rise in business investment are evidence of a gradual and broadbased upturn. Employment figures are also showing a positive trend and unemployment is falling.
The difference in credit growth between households and non-financial enterprises is a good illustration of Norway’s dual economy. Over the past few years, credit growth has been far higher for households than for enterprises. The level of household credit growth has remained high recently in spite of increased unemployment and a downward revision of the prospects for economic growth. An important reason for this is the sharp rise in house prices in recent years. Low investment demand is reflected in credit to non-financial enterprises, which has declined to a very low level. Developments in prices for commercial property compared to house prices also indicate that the situation is better for households. The current level of vacancy in commercial premises is very high. Although lower interest rates will, in isolation, stimulate investment, a substantial share of the vacant premises will probably have to be filled before renewed growth can be expected. Developments in mainland enterprises have been characterised by low output growth, falling investment and declining profitability in many industries. In order to boost returns on invested capital, enterprises have taken steps to reduce costs, primarily by reducing their workforce or relocating parts of their production abroad. There are some positive impulses, however. Interest rates are low, and equity prices have increased sharply since the trough in February 2003. The krone has depreciated and there are signs of a global upturn. Wage growth has moderated and cost inflation is likely to be lower than in the years from 1998 to 2002.