It may take some time before interest rates are increased substantially in the US. Growth in Asia is solid, but a global rise in interest rates is unlikely to start there. Inflation is higher in the euro area than in the US and approximately in line with the objective defined by the European Central Bank. In the euro area, however, capacity utilisation is very low, unemployment high and the outlook for growth is weaker. Recently, inflation has moderated slightly. Against this background, it will probably also take time before interest rates rise markedly in the euro area. Interest rates abroad have been unusually low for 2½ years, and it appears they will remain low for a period ahead. This poses a challenge to monetary policy in Norway. Growth in the Norwegian economy has picked up. Lower interest rates have contributed to sustaining growth in private consumption. Household demand will probably be the most important driving force in the Norwegian economy in the period ahead. Against the background of high real income growth, improved job security and expectations of continued low interest rates ahead, household consumption is expected to exhibit strong growth. Petroleum investment exhibited brisk growth in 2003. Growth in petroleum investment would appear to continue in 2004, but probably at a slower rate than in 2003. Low interest rates and house price inflation imply higher housing investment in the period ahead. Fiscal policy also contributes to stimulating activity.
The effect is, however, expected to be more than offset by the prospects of very low inflation this year. In 2005 and 2006, wage growth is projected to increase as a result of a tighter labour market and higher inflation. There has been a tendency in recent years for a larger portion of pay increases to be agreed in the first year of the two-year period covered by the main agreement. If we consider these two-year periods together, the estimated relationship between wage growth and developments in the labour market are approximately in line with that observed since the mid-1990s. Developments in real economic variables are mirrored in credit markets. In recent years, household income has shown solid growth, and household confidence has been high. However, corporate earnings have been low, and until recently enterprises have primarily focused on enhancing efficiency. Credit developments are giving ambiguous signals to our interest-rate setting. Growth in household borrowing is high, but enterprises are reducing debt. The change in the breakdown of credit may have been amplified by banks’ increased eagerness to extend credit to households after a period of losses on loans to the business sector. Some reports from our regional network indicate that there are some restraints on credit for the business sector in some areas. Developments in credit to enterprises shadow developments in their investments. Low credit growth indicates that mainland business investment has not yet picked up. Total credit is expanding broadly in line with normal growth in nominal GDP.