During the upturn, Norwegian firms fared well in spite of high costs, thanks to efficiency gains, high turnover volumes and price increases. Despite the high cost of Norwegian labour, there has been virtually full employment. Markets will be more demanding ahead. Despite the floating exchange rate, our cost level cannot be expected to fall to any great extent as economic conditions are weaker in other European countries than here. The industrial structure in Norway’s relatively small economy is different from that of other advanced economies. The emergence of new Asian market economies is beneficial for Norway owing to its sizeable commodity exports and freight transport. This is also reflected in Norway’s equity market. The value of Norwegian listed companies correlates closely with the value of companies in emerging market economies. Norway is vulnerable to a slowdown in growth in Asia. In such a scenario, commodity prices might fall and the terms of trade deteriorate. Norway’s high cost level could at the same time make it difficult for the business sector to shift to new markets. Petroleum revenue spending Government petroleum revenue spending influences Norway’s cost level and trade conditions in international markets. BIS Review 44/2010  5  According to the fiscal policy guidelines, petroleum revenues should be phased gradually into the economy, approximately in pace with the expected real return on the Government Pension Fund Global, which is estimated at 4 per cent per annum.
Today the benchmark portfolio is more diversified and includes a large number of countries globally. 8  BIS Review 44/2010  In 2008 it was decided to increase the share of emerging market assets in the Fund’s benchmark portfolio. Thus, investments in these markets have grown. The government has stated that the expected annual return on the Fund will be close to 4 per cent over time. Since its establishment, the average return has been 2.7 per cent. It was only a little more than a year ago that we witnessed the steepest fall in global capital markets in our time. By maintaining the Fund’s risk profile it is fairly probable that the average return will gradually approach 4 per cent again. Last year was the best in the Fund’s history. Gains in international equity and fixed income markets led to a record annual return of 25.6 per cent in 2009. 3 However, developments in  3  Government Pension Fund Global – Annual Report 2009. BIS Review 44/2010  9  2009 must to a large extent be viewed in light of the financial crisis and are mainly due to a reversal of the negative results in 2007 and 2008. Multilateral approach to global challenges Finally, let me turn to the international economic order and developments in multilateral institutions over the past few years.