It has since picked up again. When population growth is taken into account, this picture also changes. Growth in fixed capital per capita has declined and is close to zero, even after three years of low interest rates and solid growth in the economy. Investment in the mainland economy has been at a low level in the years following the financial crisis. Thus, our overall value added per capita has increasingly been spent on consumption and on replacing existing fixed capital. Chart 18: High growth in labour-intensive sectors The phasing-in of a highly profitable oil industry and higher petroleum revenue spending via the central government budget has amplified the structural shifts in the Norwegian economy. Services production has increased. When the financial crisis hit, industries that do not benefit from oil sector demand or public spending stagnated. The differences in growth across industries has thus widened since 2008. Labour-intensive sectors with relatively low productivity have accounted for a large share of employment growth in recent years. Employment has shown only moderate growth in industries with a high share of fixed capital per employee and a high productivity level, such as manufacturing and technical activities. Chart 19: Public purchases of goods and services Budget spending priorities have pushed in the same direction. In the past 40 years, public consumption as a share of mainland GDP has increased considerably from 18 percent in 1970 to 28 percent in 2011. In the same period, the share of investment has remained virtually unchanged.
Countries that have attempted to shield their economies from the rest of the world have fallen back into stagnation. Nascent signs of increased protectionism are again giving cause for concern. If this tendency intensifies, international trade and prosperity will be undermined. With its open economy, Norway would be severely affected. It is in our own interest to make an active effort to counteract such a development. Monetary policy – a nominal anchor Against the background of an economic downturn and low interest rates among Norway’s trading partners, the conduct of monetary policy in Norway is challenging. A higher key policy rate might have curbed debt growth and demand pressures in the Norwegian economy. But in an environment of persistently low external interest rates, such a policy would likely have led to a sharp appreciation of the krone, resulting in too low levels of inflation and economic activity. Thus, the crisis in Europe and weak growth in the US are also contributing to keeping interest rates in Norway at a low level. BIS central bankers’ speeches  3  The main objective of monetary policy in Norway is low and stable inflation. This objective provides the economy with a nominal anchor. With firmly anchored inflation expectations, monetary policy can contribute to stable developments in the real economy. Chart 7: Rise in consumer prices The operational target of monetary policy is annual consumer price inflation of close to 2.5 percent over time. Over the past ten years, average inflation has been somewhat below, but close to, 2.5 percent.