The outlook for the euro area is still not very encouraging. In particular, industrial confidence has been weak for some time. Contribution of exports and net exports1) to GDP growth Percentage points 3  3  2  2  Exports  1  1 0  0 -1  -1  Net exports  -2  -2  -3  -3 -4  -4 1996  1997  1998  1999  2000  2001  2002  1) Based on figures for total imports and exports for mainland economy. 2002 figures are projections Sources: Statistics Norway and Norges Bank SG Gausdal 31.01.03  There are also signs of stagnation and low growth in the Norwegian economy. The chart shows the contribution from net exports to activity in the mainland economy. We see that this component curbed growth in mainland Norway by about ¾ percentage point, from a positive contribution of a good 1 percentage point in 1999. In contrast to the situation in the mid-1990s, when high imports contributed to weak net exports, our export industries are now being affected. Traditional merchandise exports fell towards the end of last year. Export prices have also declined somewhat, reducing corporate profitability. A strong krone and high domestic demand have also contributed to the continued rise in imports. Regional network November 2002  • Generally falling production in the export industry.
A positive output gap indicates a level of activity that fuels pressures on economic resources and rising price and cost inflation. (See for example Frøyland and Nymoen (2000) and Olsen, Qvigstad and Røisland (2003) for more on the output gap.) The optimism spread to Norway, where equity prices also rose. The level of activity was very high in the securities market, among corporate lawyers, consultancies and in the ICT industry. High oil prices through most of the 1990s resulted in buoyant investment activity and growth in operating expenses in the petroleum sector. With substantial government tax revenues, expectations concerning the use of petroleum revenues also rose. It became increasingly challenging to keep pressures in the economy at bay by means of fiscal policy. The response to this challenge was the revision of economic policy in spring 2001. The most important policy change was the strategy for the phasing in of petroleum revenues – the so-called fiscal rule. An inflation target for monetary policy was introduced at the same time. The revision came after four years of strong economic expansion and high growth in labour costs, pressures to spend petroleum revenues and high household credit growth. Implementation of monetary policy • The interest rate is set so as to keep inflation at a low and stable level • Higher interest rates will reduce inflation by curbing demand and strengthening the krone. An interest rate reduction has the opposite effect. • The effects of interest rates on inflation may vary over time.