For example, China’s share of footwear imports to Norway increased by 4 percentage points to 20 per cent in 2004. The share of clothing imports increased by 2 percentage points to 32 per cent. The decline in prices for clothing and footwear will probably continue in the coming years. Prices for audiovisual equipment are still falling as a result of strong international competition and high productivity growth. We assume that the effects of structural changes in these markets will gradually be exhausted towards the end of the projection period. External price impulses via consumer goods are expected to increase in pace with unit labour costs among our trading partners. The projections in Inflation Report 1/05, published on 16 March, are based on a gradual increase in the interest rate. This is in line with financial and foreign exchange market expectations. The krone exchange rate is assumed to move in line with the forward exchange rate. This implies that the krone will remain fairly stable around the current level in the years ahead. Growth in private consumption is expected to remain buoyant both this year and next, primarily reflecting low real interest rates, strong growth in real disposable income and a continued rise in house prices. In the period ahead, higher employment and wage growth will continue to fuel household demand. On the other hand, household debt has risen sharply. This implies that a normalisation of interest rates will increase household net interest expenses. After a period, growth in consumption may be fairly low.
The fairly low level of growth in employment, as measured by the number of employed, must be seen in the light of the sharp decline in sickness absence through 2004 after rising for several years. The decrease in sickness absence has increased companies’ supply of  2  BIS Review 18/2005  labour and reduced the need for new employees. Measured in person-hours worked, employment growth was solid last year. Person-hours worked increased by 2.2 per cent from 2003 to 2004. A corollary to the increase in the number of person-hours worked is partly reduced sickness absence and partly three more working days in 2004 compared with 2003. An increase in available person-hours and increased competition and rationalisation in many sectors led to higher-than-normal growth in potential output last year. The economy has therefore been able to grow a fairly rapidly for a period without the emergence of bottlenecks in the labour market. In the business tendency survey, manufacturing industry reported higher output volumes and capacity utilisation. Average capacity utilisation in the manufacturing sector is now close to its historical average. Norges Bank’s regional network reports that nearly half of the contacts would have some or substantial problems in increasing production in excess of planned levels. This may indicate approximate balance between supply and demand in the economy, and that capacity utilisation is about normal. A normal level of capacity utilisation is consistent with an output gap – the percentage deviation between actual and potential output - that is now close to zero.