The direct effect of the global downturn on overall growth in the Norwegian economy has so far been limited. This is partly attributable to high oil prices and the high level of activity in the oil sector. However, as a result of the interest rate differential and the strong krone, the global downturn will have a substantial impact on Norwegian business and industry. The government’s use of petroleum revenues or expectations of increased spending of petroleum revenues may have contributed to sustaining activity and the strong krone. Increased use of petroleum revenues over the central government budget is stimulating demand for goods and services. This will intensify the contest for economic resources and pressures in the business sector. Mainland GDP in 2002 Percentage change. Projections published at different points in time 2.5  2.5  2  2  1.5  1.5  1  1  0.5  0.5  0  0 Nov 00  Mar 01  Jul 01  Nov 01  Mar 02  Jul 02  Nov 02  Source: Norges Bank SG Gausdal 31.01.03  The exchange rate may move more in the short term than is necessary in the long term. One reason may be that the krone has to overshoot its long-term level since market participants will weigh the interest rate differential against the possibility of a future depreciation of the krone.
This may be related to greater uncertainty as to developments in the German economy. Forward interest rates 10 years ahead. US, Germany and Norway Per cent 7.5  7.5  7.0  7.0  Norway 6.5  6.5  6.0  6.0  US 5.5  5.5  Germany  5.0 4.5 01/01/01 01/05/01  5.0 4.5  01/09/01  01/01/02 01/05/02  01/09/02  01/01/03  Source: Norges Bank SG Gausdal 31.01.03  The mandate for monetary policy with an inflation target provides a sound basis for assessing Norges Bank's interest rate setting. According to the regulation, the direct effects on consumer prices resulting from changes in interest rates, taxes, excise duties and extraordinary temporary disturbances shall in general not be taken into account. This means that monetary policy must be oriented towards bringing underlying inflation, adjusted for the deviations mentioned above, close to 2½ per cent. An adjusted index such as this will be most relevant when assessing the orientation of monetary policy in retrospect. The most common indicator of underlying inflation – the consumer price index adjusted for tax changes and excluding energy products (CPI-ATE) – has shown a year-on-year increase of between 1.8 per cent and 2.7 per cent since the inflation target was introduced. In December, the last observation to date, the year-on-year rise was 1.8 per cent.