As a result, they have been, and probably still are, able to increase production to a fairly large extent without any substantial increase in real capital and employment. There are prospects of solid growth in productivity in 2004. Nevertheless, our regional network reports that companies in a number of industries are now considering an increase in employment. After rising sharply for several quarters, economic growth in the US slowed in the second quarter and employment growth appears to have stalled this summer. Economic growth has picked up from a low level in the euro area. Economic growth has also gained momentum in Sweden and the UK. Strong growth in the US and China exerted upward pressure on commodity prices in 2003 and the beginning of 2004. Since then, price inflation has been dampened. Oil prices have risen considerably during the summer. Interest rate expectations indicate interest rate increases in a number of countries. The effects of oil price developments on the Norwegian economy are mixed. Persistently higher oil prices may eventually contribute to higher petroleum investment and increased activity in sectors affected by petroleum activities. A sharp rise in oil prices, however, restrains global economic growth and affects demand for our other export products. The analyses in Norges Bank’s last Inflation Report in July 2004 are based on the technical assumption that interest rates will move in line with forward interest rates.
On the basis of these analyses, a strong real krone exchange rate and weak competitiveness will apply to a period from the beginning of the 1970s in which the petroleum industry is expanding and we are reaping the largest economic benefits. Main features of the economic situation Inflation is low. The rise in prices is being curbed by the appreciation of the krone in 2002, the fall in prices for imported consumer goods in foreign currency and strong competition in many industries in Norway. Monetary policy in Norway is oriented towards returning inflation to target. The sight deposit rate has been lowered to 1.75 per cent. Low interest rates and the global upturn are stimulating activity in the Norwegian economy. The output level will be somewhat lower than implied by the trend level. This means that the output gap is projected to approach zero, but will continue to be marginally negative in 2004. Growth in the Norwegian economy is projected to pick up markedly this year and remain relatively high next year. The most important contribution comes from private consumption, fuelled by low interest rates and high real wage growth. The global upturn will probably have a positive effect on the internationally exposed sector. Petroleum investment will continue to expand in the next couple of years. Mainland business investment is also expected to pick up gradually. In recent years, many enterprises have rationalised operations.