1990=100  110  110  105  105  100  100  Local currency  95  95 Common currency  90  90 1990 1992 1994 1996 1998 2000 2002 2004  Sources: TRCIS, Ministry of Finance and Norges Bank  14  BIS Review 11/2004  The fall in the value of the krone over the past year has strengthened the Norwegian business sector. The business sector is, however, still feeling the effects of a sharp rise in labour costs over a period of several years. Relative labour costs measured in a common currency are in line with the level prevailing in 1990, but approximately 10 per cent higher than in the mid-1990s. The internationally exposed sector has been scaled back. Those companies that are currently operating may be in a better position to bear the high wage level. Nevertheless, costs may limit activity and employment. Growth in the Norwegian economy picked up again through the summer of 2003. In the period ahead, solid growth in household income, subdued consumer price inflation and low interest rates will provide the conditions for high growth in private consumption. There is optimism in the building and construction sector. High petroleum investment is also supporting activity while mainland business investment has been low for a long period. The number of persons employed began to increase in the summer of 2003 and unemployment stabilised.
Businesses are rationalising and earnings are on the rise, but they are still investing and borrowing on a limited scale. The upturn is still not entirely self-sustained. A global financial market  Chart 1. Long-term interest rates Per cent 15  15  12  12  9  9  6  6  3  3 Norway  US  Germany  0  0  1983  1986  1989  1992  1995  1998  2001  2004  Source: EcoWin  Cross-border capital flows have increased considerably in recent decades. Bond markets have moved more in tandem, particularly since the mid-1990s. This also applies to equity markets. BIS Review 11/2004  1  Investors are increasingly spreading their investments across countries. They are diversifying risk, and seeking high returns. In parallel, governments, banks and companies are issuing more debt externally. Chart 2. Global daily foreign exchange trade In billions of USD 1600 1200 800 400 0 1983  1989  1992  1995  1998  2001  Sources: BIS, IMF, central banks  Currency trading has increased markedly since the 1980s. This trend was reversed when the number of currencies was reduced owing to the introduction of the euro. Large trading volumes enhance market liquidity. The growth in currency trading is ascribable to an increase in portfolio investment, higher foreign direct investment and growth in world trade. The forward exchange and options market have expanded in recent years.