National Report

Summary

Demand, output and market outlook

Growth in demand and production is the same as in the previous round, as is the market outlook for the next six months, and future investment plans. This round is thus characterised by growth in all sectors and all regions. However, there are regional differences. Economic activity is highest in Region South-West and lowest in Northern Norway and Inland.

Growth is strongest in building and construction, corporate services and petroleum-related activities. Here we find characteristic regional differences. Generally speaking, growth along the coast from Southern to Central Norway is primarily petroleum-driven, while growth in Eastern Norway is primarily being driven by business-related services. Growth is primarily linked to financial, consulting and advisory businesses. Temporary staff agencies are also reporting solid performance.

In building and construction, activity is highest along the coast from South to North-West. Residential construction activity is still high and there is solid growth in the sectors construction and commercial and public building.

Both the export industry and domestically oriented industry report solid growth. Growth in domestically oriented industry is broadly based. Manufacturers of consumer durables such as furniture and boats, newspapers and media companies and suppliers to building and construction all report increased demand. The food industry reports a moderate increase in growth. The export industry also reports continued solid growth. The fish-farming industry is once again optimistic in the light of increasing demand for Norwegian salmon. The export-oriented technology industry is also experiencing strong growth, while signals from the processing industry are mixed.

Retail trade also reports a growth rate on a par with the previous round. There is solid growth in sales of leisure boats, building materials, electronics and furniture, while there appear to be considerable regional differences for clothing and footwear.

The rate of growth for household services is lower than for corporate services. However, there is solid growth in the private banking market, and hotels and restaurants are reporting higher activity than earlier.

The market outlook for the next six months points clearly towards growth remaining buoyant in all sectors, and especially among suppliers to the petroleum industry and corporate services. There is growing concern regarding the krone exchange rate in the export industry and domestically exposed industry. At the same time, companies appear to have better exchange rate management strategies today than 3-4 years ago.

Capacity utilisation and investment plans

53% of all companies report that they would have some or considerable difficulty in accommodating an increase in demand. This is an increase from 49% in the previous rounds this year, and higher than in autumn 2005. Four of 10 enterprises indicate that the labour supply is an obstacle to further growth. This is a marginal increase on the previous round. A year ago, the share was 24%, so our observations confirm the impression of an increasingly tight labour market.

The situation in building and construction is most precarious, with three out of four companies reporting that labour shortages are limiting turnover. Petroleum-related industry is also facing growing constraints, while retail trade and the public sector have the least difficulties associated with capacity utilisation and growth.

Future investment plans are also on a par with the previous round, i.e. all sectors have moderately increasing investment budgets at high levels. The local government and hospital sectors imply stronger investment growth than in the private sector.

Employment and labour market

Employment is on the way up in all sectors. Developments are similar to the previous round, with one exception: employment is now also increasing in retail trade. In the private sector, growth is strongest in Region South-West, as confirmed by the Directorate of Labour. Employment growth appears to be lowest in Region Inland.

Growth in the number employed is expected to continue at the same rate for the next three months. Building and construction expect somewhat stronger employment growth than the other sectors. This is in line with what we reported in the previous round.

Costs, prices and profitability

In the previous round, expected annual wage growth was between 3.5% and 4.5%. In the private sector, expected annual wage growth increased by 0.5 percentage point across the board in the last two months, and is now in the interval 4-5%. Services lie at the upper end of the range, while manufacturing and retail trade are at the lower end. Expectations in the public sector average 3.5%. Many contacts expect strong growth for certain groups where the result of local negotiations will be decisive.

Prices are increasing in all industries with the exception of retail trade. The rise in prices is strongest in the export industry, petroleum-related activities, building and construction and corporate services. Compared with observations in March, the rise in prices is now higher in exports and corporate services. Just over half of companies expect the same rise in prices in the next 12 months, while just over a quarter are expecting a higher rise in prices.

Profitability is improving in all sectors, again at the same pace as in the last round. The offshore industry has seen the highest gains, but the export industry, building and construction and service industries also have solid bottom lines. Profitability developments in domestically oriented industry and retail trade are more moderate.