In view of the tightening taking place in the Swedish labour market, there may be reason to expect a reduction in the supply of labour from Sweden. Over the past six months, there have been steadily growing signs of labour shortages in the Norwegian economy. Unemployment has shown a marked decline and is now at a low level. Employment is still on the rise, while the labour force as it has been registered in current statistics has remained virtually unchanged in recent months. Seasonally adjusted, registered unemployment stood at 2.4 per cent of the labour force in September. The number of registered unemployed adjusted for seasonal factors was close to 59 000. Unemployment has declined for all occupational groups and has been most pronounced in manufacturing, the construction industry and in the engineering and ICT sectors. There are probably limitations to how much the supply of Norwegian labour can increase in the period ahead. Labour participation rates are high, particularly when taking into account demographic developments. Developments in the labour market are similar to the profile observed ahead of the period of accelerating wage and cost inflation that started in 1998, but wage growth has been fairly moderate since the upturn began. Several factors may have contributed to this.
House prices increased further this summer, and the twelve-month rise moved up to 17.7 per cent in August. Residential construction is still high. In 2005, the number of housing starts was the highest since the beginning of the 1980s. As the interest rate level gradually normalises, household interest expenses will increase. Combined with projected lower employment growth and higher inflation, this might reduce growth in household purchasing power in the years ahead. Higher wage growth would have the opposite effect. Overall, moderate growth in household purchasing power is expected to result in lower consumption growth ahead. A gradual increase in the interest rate will probably curb activity in the housing market. Housing investment is expected to grow through this year, albeit less rapidly than last year. Housing investment growth will thereafter moderate further, and may fall somewhat towards the end of the projection period. House price inflation is expected to slow. Household indebtedness has increased in tandem with high activity in the housing market. Growth in household debt (C2) has abated somewhat in recent months, but remains at a high level. Higher interest rates and lower house price inflation will gradually reduce household debt growth in the next few years. Growth in credit to mainland enterprises has also shown a sharp increase over the past year, partly reflecting increased fixed investment. With prospects of continued high capacity utilisation in the Norwegian economy, solid profitability, ample liquidity and a high level of optimism among enterprises, strong growth in investment is expected again this year.