Regional Network report
Regional network 6/2003
Interview period: November 2003
Responsible: Region Central Norway, Allforsk / Torberg Falch
- Growth in manufacturing for both the export and domestic markets is weak but is picking up momentum.
- Growth in private consumption is contributing to output growth in manufacturing for the domestic market.
- Some export-oriented businesses report better international markets, for fish products, among others. Other enterprises are struggling with the falling USD exchange rate. This makes it difficult, for example, for the shipbuilding industry to obtain new orders.
- Demand for services aimed at the business sector is rising. There are strong indications that a shift occurred in the summer of 2003 - from reduced demand to increased demand.
- In general, manufacturing and the corporate service sector are marked by nascent, cautious optimism. At the same time, there is great uncertainty regarding the strength and persistence of this growth. The manufacturing sector is showing restraint with regard to capacity expansion and recruitment.
- The construction industry reports growing volume in large parts of the country. Only in the capital region does the level of activity continue to fall.
- Demand growth is highest in retail trade and household services. In the past months, growth in retail trade volume has been about 4 per cent.
- The growth in private consumption is strong enough to prevent a further decline in overall employment, and confidence in employment growth in the period ahead, especially in the service sector, appears to be increasing.
- Despite nascent optimism, enterprises' investment plans do not indicate any substantial increases in investment next year.
- Profitability is improving in both manufacturing and the service sector due to considerable focus on efficiency improvements over a longer period, better capacity utilisation and increased volume.
- The upturn in the economy that is currently underway is being driven primarily by stronger household demand. The decline in interest rates and the perception of more normal electricity prices are giving households greater financial flexibility.
- The improvement is already evident in some sectors, especially retail trade (groceries, kitchenware, white goods and electronic goods) and to a degree in the service sector (finance).
- In general, the business sector is showing nascent, cautious optimism. At the same time, enterprises are showing restraint with regard to investment and recruitment due to uncertainty and a substantial aversion to risk. Income must be earned before investments are made to expand capacity.
- Employment growth has not materialised. Most enterprises report stable or somewhat reduced employment.
- The construction sector, which issued warnings before the summer holiday of a lean second half, is now far more optimistic. Households are refurbishing dwellings, and the decline in residential construction also appears to have come to a halt.
- The oil industry and companies supplying goods and services to the oil industry are at a crossroad. The industry is expecting an expansion of activities in the Barents Sea and changes in the tax regime. The maintenance and modification market is showing steady, moderate growth.
- All sectors report that the labour market is still flooded with well-qualified labour.
- Retail prices have changed little in the period, though there has been a slight rise in line with inflation. Continued excess capacity in the construction sector as well as in parts of the oil industry provides an explanation of why prices in new tenders are not increasing.
- Operating margins, narrowing in all sectors in the spring, are now showing a slight upward tendency, except in industries with surplus capacity.
- The decline in interest rates is having a positive impact on capital-intensive enterprises and sectors but so far has not affected the level of investment. It appears that expectations concerning market developments are a more important indicator of the desire to invest than the interest rate level.
- In the domestic market, growing household demand is beginning to have a noticeable impact on retail trade and the service sectors.
- Parts of the export industry report growing demand attributed to a more favourable NOK exchange rate and internal cost reductions.
- Other export industries, such as shipbuilding, are encountering very low price levels in international markets. Although market demand is strong, most Norwegian players are not competitive, due to Norway's high cost level.
- Investment in capacity increases has not materialised. Many respondents report excess capacity in machinery and installations, while most companies have little excess personnel capacity.
- Most enterprises expect a continued reduction in employment as a means of becoming more effective and reducing costs.
- Unemployment is high and the supply of qualified labour is good. At the same time, the public employment service has been very active. Half of those who become unemployed find a new job within three months and nine out of ten within twelve months.
- The public sector has tight budgets and expects stagnation or a reduction in employment.
- Activity appears to be increasing in most sectors, with the exception of the construction industry. Although growth in demand is highest in retail trade and the household service sector, demand has also picked up in manufacturing and the corporate service sector. New orders signal further growth.
- The decline in the commercial property market continues, particularly in the market for office space. However, the demand for retail space is good, and activity in the construction sector is described as high and rising.
- Prices for resale homes are rising, and the stock of new unsold housing is being reduced. New orders are increasing, but building activity is not expected to rise in the coming months.
- Despite increased optimism, there are still no signs of a substantial increase in investment over the next year.
- With the exception of the manufacturing sector, the fall in employment appears to have come to a halt. In the private sector, enterprises reporting plans to increase employment in the period ahead outnumber those planning workforce cuts.
- Profitability in the entire private sector is increasing as a result of both cost cutting and income growth.
- Enterprises continue to describe capacity utilisation as lower than "normal".
- In retail trade and the household service sector, the trend is towards higher purchase prices for imported goods and services as a result of developments in the exchange rate.
- Although the level of activity in the region is still somewhat low, this interview round confirms earlier signals that one sector after another has reached the trough and that activity levels are cautiously edging up. How long this takes varies from sector to sector, and signals from different contacts are mixed.
- Household demand is growing. This demand applies primarily to manufacturing and retail trade aimed at consumer durables, and less to housing, where the market remains relatively flat for now.
- Developments are more positive in the household service sector than in the corporate service sector, although there are signs of increased activity there as well.
- For export industries, exchange rate developments are important, and a weaker krone in relation to the euro has had a positive impact on some industries such as fishing and fish farming. At the same time, the strong euro and the strong krone in relation the US dollar has led to increased competition from USD-based manufacturing in Asia and the US. For example, the order situation for the USD-based shipbuilding industry is still weak despite a growing market.
- Reports of employment growth are the exception. Most enterprises will keep employment levels stable and will choose to reduce the wage share by means of automation and productivity improvements when activity picks up. Employment continues to decline in the shipbuilding industry, and a number of enterprises are facing significant underemployment in the next few quarters.
- The business sector is cautious regarding investment and borrowing, due in part to the banks' strategy. In the construction and furnishings industries, activity has still not picked substantially, but it is expected to edge up next year.
- After an extended period of cost reductions, productivity improvements and structural rationalisation, there are signs of improved financial strength and profits in the region's business sector, and more enterprises are now focusing on income growth. Wage settlements have generally been moderate this year, especially in manufacturing, and many are expecting moderation next year as well.
- The manufacturing industry for the domestic market reports that demand has stabilised in certain sectors. Export manufacturing reports growing demand for products. There has been a marked increase in demand for certain special products (processed salmon products and refrigeration and cold-storage plants). The situation is still very difficult for some manufacturing sectors in particular areas (Finnmark), although there is optimism as a result of structural changes in the local fishing fleet.
- The corporate and household service sectors report positive developments in the past three months and expectations of continued growth. The hotel sector reports increasing course and conference activity, more business trips and more leisure travel as a result of an improved economy. There is also growth in the housing market and the IT sector.
- Growth in retail trade continues. The negative trend in new car sales has reversed. The following product groups show an upswing: cars, food and residential building supplies.
- Excess capacity persists in the manufacturing and construction sectors, but the decline in employment has stabilised. In other sectors, employment growth is possible, but enterprises have a wait-and-see attitude. The public sector is focusing on rationalisation by means of reorganisation. The number of employees remains stable despite weak municipal finances.
- The decline in retail prices for domestic market manufacturing and for retail trade has levelled off. For the other sectors, the trends are the same as in the previous period - stable prices in the corporate and household service sectors. Travel agencies report a decline in prices in step with lower costs for airline tickets. Prices are rising in the IT sector due to increasing demand for services. In addition, there is pressure on prices in knowledge-based activities and tourism. The construction sector reports higher hourly rates.
- The interest rate cuts have had a substantial positive effect, both on profits and on many companies' markets. The positive psychological impact is beginning to have an effect, especially on housing sales, retail trade and household services.
Region Central Norway
- During the second half of the year, overall manufacturing output has risen slightly.
- Since the summer, the corporate service sector has experienced growth in demand.
- Growth in retail trade is strong and is gaining momentum.
- In recent years, growth in the construction sector has been steady and has matched market supply. This trend continues. The volume of housing construction has been stable and continues at the same level. The decline in commercial expansion has stopped and growth in demand from the public sector has come to a halt.
- In most markets, competition is becoming more intense. This is also the case for retail trade, although there has been marked turnover growth for several years due to business start-ups and expansions.
- In general, it is our assessment that there is growth in all sectors of the economy, but there is great uncertainty regarding the strength and duration of the upturn among enterprises that do not sell directly to consumers.
- Retail prices and operating margins have changed very little since the summer.
- Employment continues to decline slightly in manufacturing, is unchanged in the public sector, but is growing slightly in some other industries. Unemployment has stopped rising, and our view is that the trend will be towards lower unemployment in the near future.
- Growth in retail trade and the household service sector remains relatively strong due to moderate price increases and increased household disposable income.
- The corporate service sector reports a slight increase in demand and activity levels after a period of stagnation.
- Manufacturing activity is edging up for industries supplying goods to the domestic market as well as for those manufacturing goods for export. Manufacturing for the domestic market is benefiting from increased demand, whereas export manufacturing is enjoying the benefits of a weaker krone as well as stronger demand in some markets.
- Activity trends in the construction sector vary widely from one region to the next in Region Inland. Overall there is a slight rise.
- Except for the local government sector, the fall in employment appears to be slowing. Few respondents in the public and private sectors report plans to increase employment in the period ahead.
- The private sector appears to be more positive about investment plans, though there is little to suggest appreciable growth in investment.
- Margins are improving slightly for manufacturing and the service sector (except for retail trade) due mainly to increased demand, somewhat higher prices in the domestic market and a weaker Norwegian krone.
- Most enterprises can increase production somewhat without increasing the number of employees. In relative terms, manufacturing has the most excess production capacity.
In autumn 2002, Norges Bank established a regional network of enterprises, organisations and local authorities throughout Norway. More about the Regional Network