Main points

In this round, which was conducted in May-June 2003, a total of 229 contacts in the regional network were interviewed. The following main points are based on the regional reports:

• None of the business sectors are generating growth impulses to the Norwegian economy. All sectors report that demand and output have not changed or are falling. This impression is reinforced by a low level of new orders for all business sectors and little desire to invest. So far, interest rate reductions have not increased investment optimism.
• The oil industry is stagnating as well, despite high oil prices in the period.
• Both export-oriented and domestically oriented manufacturing are experiencing unchanged output. Thus, it appears that export industries have recovered from the worst decline. Figures indicate, however, that parts of production are being maintained by reducing prices and margins.
• Standardised products that compete on the basis of price continue to lose export market shares, while niche-oriented exports tolerate high cost levels.
• The impact of weaker cyclical developments is spreading to the construction industry. So far this year, output has shown a falling tendency and the level of new orders is reported to be weak. Previous years' high levels of investment, particularly in commercial buildings, and subsequent overcapacity are intensifying this negative trend. This trend is taking root earlier in eastern Norway than elsewhere in the country.
• None of the sectors report an increase in employment. The primary focus, particularly in manufacturing, is still on cost and workforce reductions.
• The wage settlements so far support expectations of considerably lower wage growth in 2003 than in 2002. Increasing unemployment and weak market and profitability trends in a number of business sectors are contributing to this. In 2003, annual wage growth is expected to be 3.5% in the private sector and 4.5% in the public sector.
• All sectors report stable price trends. Operating margins are falling, except in domestically oriented manufacturing and the distributive trades, where margins are stable.
• Capacity utilisation has improved slightly since the last period as a number of companies are adapting capacity to lower demand.
• The labour supply is very good and represents no limitation to expansion.

Region South-West

• We find no strong growth impulses in any of the business sectors. This also applies to the petroleum industry, despite high oil prices. This does not mean that there is not considerable growth in some companies, but it is occurring at others' expense.
• Internationally exposed industries report continued pressures due to the krone exchange rate and wage growth in recent years. Niche-oriented export firms are holding up in the face of high cost levels and record both growth and profitability.
• No companies appear to be planning any considerable increases in their workforce. Most contacts report stable employment or some decline. Some companies report considerable workforce reductions. In Rogaland County, there were approximately 1000 redundancies in the oil industry in the last quarter.
• Companies with activities outside of Norway are more likely to employ people abroad than in Norway.
• All business sectors also report that the labour market is overflowing with qualified labour. Municipalities that previously had problems recruiting nurses, architects and engineers now report that the labour supply is satisfactory. The increased supply is also related to the fact that a growing number are applying to "more secure" large enterprises.
• Growth impulses are not being generated by increased investment. On the contrary, a number of companies have postponed previously approved projects. It takes time for the reduction in interest rates to have an effect.
• So far, the activity level in the building and construction sector has remained stable without a reduction in prices. However, new order levels are contracting, so that a decline is expected after the summer holidays or sometime this autumn.
• The distributive trades report disappointing developments in the first quarter, except food chains, where turnover is increasing.
• Operating margins for all sectors are falling.
• Selling prices changed slightly during the period, within the interval -2 to +2 per cent.
• Wage growth in 2003 is expected to be 3.5 - 4 per cent.
• The supply of qualified labour is improving steadily. A number of companies report that there is a wider range of qualified job-seekers. Former bottlenecks in the public sector have disappeared.
• The decline in interest rates has not yet had a noticeable effect on investment and employment. The private sector reports lower-than-normal investment levels.
• The private sector can increase output and turnover without increasing the workforce or physical capacity.
• The above trends, combined with a decline in parts of the petroleum sector and a lower level of new orders in the business sector generally, point to higher unemployment in this region as the most probable outcome.

 Region South

• The main impression is that most companies perceive the economic situation to be unstable. Developments in the period ahead are being assessed with caution, and most contacts consider it safest to be prepared for low demand in the period ahead.
• Export-oriented companies report weakly falling output as a result of weak international demand. Profitability deteriorates when international prices are stable and volumes decline, but the recent depreciation of the krone has the opposite effect. Companies that compete on price are trying in some cases to maintain volume by reducing prices.
• Many companies have reduced employment. They are well adapted to demand and capacity utilisation is normal, but some companies still have specific plans to reduce the labour force this quarter and next.
• Order backlogs appear to be falling slightly.
• Municipalities are reallocating the workforce in line with changes in framework conditions and needs. There is a shift away from the education sector to the social welfare and health sectors. Problems in local government finances have, however, only had a marginal impact on total employment.
• With few exceptions, our contacts report that the supply of qualified labour is very good. The exceptions are as before some types of health sector personnel and skilled construction workers.

 Region East

• On the whole, demand for goods and services from domestically oriented manufacturing has shown little change. Companies facing strong foreign competition report falling output due to loss of market shares, whereas output is rising in more sheltered manufacturing sectors. Manufacturing companies that produce goods for the building market report lower levels of output.
• Demand conditions for export-oriented manufacturing have been fairly stable. There are still no clear indications of increased demand in the period ahead. Niche-oriented companies are winning market shares, whereas companies with standardised products are losing ground.
• The activity level in the building sector has fallen markedly in the last three months. There has been a sharp decline for private commercial buildings, a moderate contraction for residential construction and stable/slow growth in public sector building. The activity level in the construction sector has risen somewhat in the last few months.
• Demand for consumer durables is stable to slightly negative, whereas demand for consumer non-durables is rising markedly. Household demand for services is increasing moderately following a period with no change in the demand situation.
• Business sector demand for services continues to fall markedly. An emphasis on improving efficiency and reducing costs is contributing to a contraction in demand for business services, hotel/conference facilities, restaurants and travel.
• The investment level in the private sector appears to be lower this year than in 2002. Some retail chains are making investments in order to increase capacity. In other parts of the private sector, investment is primarily aimed at maintenance and rationalisation. Public sector investment appears to be approximately unchanged this year compared with 2002.
• Most manufacturing and service sector companies report continued expectations of lower employment. While employment growth has come to a halt in the public sector, it is steady in the distributive trades.
• Our contacts report a satisfactory supply of qualified labour, and in general better than in the last survey round.
• Annual wage growth is expected to be lower this year than in 2002. Squeezed profitability is generating expectations of low wage drift in many industries this year.

 Region North-West

• Demand in the manufacturing sector has not changed significantly since the last report. Our contacts report that output and demand are still weak, but there are signs of a levelling off at a low level. Unemployment in export-oriented manufacturing has remained at the same level, although it would normally fall at this time of year. Due to the long time horizon from contract to building start, it is clear that unemployment in the shipbuilding industry will continue to rise this year and next. Subcontractors to export-oriented manufacturing account for a large share of domestically oriented manufacturing in this region. There are indications that manufacturing, especially the equipment/subcontractor sector, is characterised by a shift in orientation. These companies are moving towards new markets, perhaps in other industries where they can use their competence. Not all companies have the financial scope to make such changes, since both equity and credit markets are considerably tighter than a half year ago.
• Activity and demand levels continue to fall in the building and construction sector. The corporate market in particular is deteriorating, whereas public sector demand is stable, except at the local government level. Developments in residential construction are also weaker.
• On average, services to the corporate market are falling slightly with signs of a levelling off. Reports from companies providing services to the household sector are somewhat divergent in the period, but overall activity is assessed to be unchanged from the previous period.
• There are signs of weak growth in the distributive trades.

 Region North

• The negative trend in demand and output in export-oriented manufacturing continued in this period compared with the data gathered in the March-April round. This applies in general to all industries.
• The levelling-off in domestically oriented manufacturing reported in the last period has changed to a further decline in this period. Domestically oriented manufacturing, particularly companies servicing the maritime sector and subcontracting to the construction sector, reports a decline.
• Our contacts continue to report weak growth in the distributive trades. Trade in capital goods, which is declining somewhat, differs considerably from trade in consumer goods, where there is a marked upswing. Growth is not expected in the months ahead. The construction sector is reporting increasing problems with maintaining activity levels, especially in regions where public sector building activity is limited. The service sector reports that demand is generally unchanged.
• Private sector investment remains low and stable, whereas public sector investment growth continues in this period. A number of contacts report the need to reduce existing capacity rather than invest in new capacity.
• Manufacturing reports a decline in selling prices, while the other companies report that selling prices are generally unchanged. In the private service sector, cheaper airline tickets are reducing price levels somewhat. The increase in prices for factor inputs and lower selling prices are being offset by the effects of interest rate reductions and changes in the krone exchange rate. Export-oriented and domestically oriented manufacturing as well as the construction sector report a continued decline in selling prices. Operating margins continue to narrow in manufacturing and construction and are unchanged in the distributive trades and the service sector.
• In this round, the contacts report an increase in lay-offs and workforce reductions in the construction sector. In addition, parts of the manufacturing sector see the possibility of moving some of their production abroad.

 Region Central Norway

• Domestically oriented and export-oriented manufacturing report a weak rise in output in the last three months.
• The growth rate in the distributive trades has been lower in 2003 than in the autumn of 2002. In the last quarter, it was probably less than 2 per cent. Many of our contacts believe that this is due to higher electricity expenses, less secure jobs and uncertainty concerning wage growth.
• The construction industry is stagnating. Public sector projects account for a steadily increasing share of activity in this industry.
• In most markets, competition is more intense than earlier. This has a dampening effect on price inflation and maintains the focus on improving efficiency and reducing costs. This affects services aimed at the business sector.
• On the whole, our evaluation is that the economy is growing but at such a slow pace that overall employment is still falling. Growth in output is a result of increased productivity.
• The supply of qualified labour is improving steadily and is now considered to be better than "normal" in all business sectors.
• The general perception is that the recent interest rate reductions have had a positive impact on economic developments and contributed to an economic situation that is less negative than in the autumn of 2002.

 Region Inland

• Demand and output have been stable for domestically oriented and export- oriented manufacturing in the last three months, and output levels are expected to remain stable in the next three months.
• Building and construction sector output has been relatively stable though slightly declining in the last three months. Building projects in the public sector (Armed Forces, nursing homes, etc.) is an important reason for the generally high level of activity. This is the case in parts of the region, whereas developments in other parts are weaker. Demand will probably remain at the same level in the next three months. At present, building contractors are able to maintain normal profit margins on projects.
• Demand for public services is rising, but the financial situation is tighter. Since many public sector services are rights-based, production and quality of service must be maintained. This implies a change in resource allocation where the focus is on the production of services geared to the user.
• Companies report normal levels of capacity utilisation in the last three months, and developments are expected to be the same during the next three months. Developments in demand and sales also reflect this situation. One sector that is generally increasing its capacity utilisation/productivity is the public sector.
• The supply of qualified labour has not changed in the last three months.
• Wage growth will be lower in 2003 than in 2002.
• Changes in both purchase and selling prices are generally small. Most purchase prices are stable or rising in pace with the CPI.