On some measures, last year – 2004 – saw the strongest growth in the world GDP in 30 years. While there has been some reduction in growth this year, most forecasters’ central expectation is that it will not prove very marked. From a UK perspective however, the external conjuncture has been significantly less supportive than this implies. The key point is that the upturn in world growth has been very unbalanced, being driven largely by the US and China. Measures of world activity which give a high weight to these two countries paint a pretty buoyant picture, especially those which use purchasing power parities. However, less than 2% of UK exports go to China and rather less than 20% to the US. Fully 50% go to the euro area, which has grown only sluggishly, and whose growth forecasts have persistently been revised down. And Germany, Italy and the Netherlands – countries which between them take around 25% of UK exports – have underperformed the euro average. As a result world GDP weighted by countries’ importance in UK export markets has shown much a weaker recovery. World price pressures have also been stronger than in recent previous cycles. This largely reflects the sharp rise in the price of oil since early 2004 – a development which seems to have taken almost everyone by surprise. This is a complex story.
Low interest rates curb the decline in investment and make it easier for households to repay debt. The change in behaviour can nevertheless take time and we cannot expect consumers in the US and Europe to drive a new upturn. The public sector will eventually have to rein in expenditure and increase tax revenues to prevent debt from increasing. If growth in the global economy is to be sustained, public and private investment and consumption in China and other Asian countries will probably have to absorb a greater share of output in these countries. In many industrial countries, export prices have risen relative to import prices. Lower oil and commodity prices are easing the burden. But Norway’s terms of trade are deteriorating. Some of the gains of the past few years have now dissipated, and Norway’s disposable income might fall by close to 10 per cent in 2009. Norway will move down on the list of the world’s richest countries. (And perhaps this is not altogether a bad thing.) Norwegian firms are affected when households the world over buy fewer cars and furniture and fewer ships are built. Lower oil prices will probably also result in a fall in investment on the continental shelf in the years ahead. But let us not forget that petroleum prices are still higher than the industry dared hope just a few years ago. 10  BIS Review 16/2009  The competitiveness of the Norwegian business sector declined during the upturn.