Low levels of production in Iraq have contributed to holding up oil prices. Strikes and production problems in Venezuela and Nigeria have also played a role. These developments may keep oil prices high until growth in the global economy returns to normal. The oil industry will then have come through this period of sluggish growth in the global economy since 2000 without a fall in revenues. This has, in isolation, curbed the effects of the international downturn on Norway. However, the situation, as a whole and with regard to oil prices, is still highly uncertain. Weak external developments have in particular had negative spillover effects on the Norwegian economy through the appreciation of the krone, the fall in equity prices last year and lower demand for Norwegian exports. The krone exchange rate is the price of our currency measured in terms of a foreign currency. Developments in other countries are just as important for the krone as developments in the Norwegian economy. The krone has been strong. As a result, prices for imported goods have fallen. This has contributed to low inflation despite strong wage growth over a period of several years. Our analyses indicate that the most important reason for the appreciation of the krone from May 2000 to the end of 2002 was the positive and widening interest rate differential. Combined with the interest rate differential, the fall in equity prices and reduced fluctuations, or volatility, in foreign exchange markets contributed to the appreciation of the krone last year.
In the following period and until the end of 2002, the krone appreciated, and the effect of high wage growth gradually came into evidence in overall corporate results. Results last year were affected by a particularly strong krone in the second half of the year. The krone exchange rate, measured in terms of the TWI, has now returned to the level of the mid-1990s, while the business sector is still grappling with the high level of costs that has built up since 1998. Changes in the krone exchange rate have proved to be reversible, but the loss of competitiveness and jobs caused by the relatively high level of domestic wage growth is more difficult to recoup. In recent years, labour costs have accounted for an increasing share of corporate earnings. In 2002, labour costs accounted for more than 90 per cent of total factor income in manufacturing. The increase in wage shares is affecting corporate behaviour. The demand for labour is declining. Credit demand and investment in the enterprise sector are low. At the same time, the commercial property market is weak. Vacancy rates for commercial premises are high and rents have fallen. This will have an impact on investment in the period ahead. Lower interest rates will normally result in higher inflation, partly because the krone depreciates, and partly because of a rise in demand. Enterprises will thus be able to increase their earnings. Business sector activity is stimulated most effectively by low interest rates and a weak krone.