Norges Bank

Regional network report

Regional network 1/2004

Interview period: February 2004

Responsible: Region North. Kunnskapsparken i Bodø (Bodø Innovation Center).

Summary

  • Developments in output and employment are positive for the entire manufacturing sector. Increased household demand and consumption are making a positive contribution to domestically-oriented manufacturing. The export industry reports that growth is stronger now than last autumn.
  • Although most types of export-oriented businesses report positive developments, some industries are experiencing problems with global competition. For example, the shipbuilding industry has considerable problems winning new orders. The domestically-oriented shipbuilding industry is also struggling.
  • Growth in demand for corporate services is accelerating. This is also the case for building and construction. Residential construction and public sector projects in particular seem to the driving forces. In both sectors, developments are positive in all regions.
  • There is still solid growth in retail trade and the household service sector.
  • Despite the improved cyclical situation, few private sector enterprises have plans to increase investment. Wholesale and retail trade and the public sector are the only sectors that are planning moderate increases in investment in 2004.
  • Employment does not appear to be rising in pace with the increase in demand and activity. Building and construction and wholesale and retail trade report moderate growth in employment, whereas there is no growth in employment in manufacturing, the service sector and the public sector.
  • Annual wage growth is expected to be 3 per cent for manufacturing, 3.5 per cent for service industries and 4 per cent for the public sector.
  • Selling prices are reported to be stable or slightly rising. Due to intense competition and customer power, the possibility of adjusting prices is perceived to be very limited. A moderate rise in profitability is reported throughout the private sector.

Region South-West

  • The upturn is more extensive and substantially more pronounced compared with the situation in the last report. All sectors report stable or increasing demand and sales.
  • Demand is growing, the market outlook for the next six months is favourable and profitability has improved considerably. The economic upturn is primarily being reinforced and driven by stronger household demand, although there is no substantial increase in investment or employment.
  • The market outlook for the next six months is very positive. All sectors are characterised by growing optimism.
  • This optimism has only resulted in a moderate willingness to invest. In general, investment remains at a normal, average level. The exception is investment in dwellings, which is growing substantially.
  • Most companies report stable employment. Extensive rationalisation and restructuring measures are still on the agenda in organisations and enterprises, and so far, growth is being absorbed by existing excess capacity or by increasing productivity. Wholesale and retail trade and the building and construction sectors are increasing their workforces.
  • The picture for the petroleum and offshore supply industry is mixed. Operators' production of oil and gas is high. Some sectors of the offshore supply industry experienced a difficult fourth quarter last year, but are more optimistic about 2004. The maintenance and modification market is showing steady, moderate growth.
  • All industries continue to report that there is an ample supply of highly qualified labour.
  • Owing to competitive pressures and continued idle capacity in many industries, selling prices are not being raised. Wholesale and retail prices are falling slightly, while manufacturing reports unchanged prices. However, we see signs of a price increase in the service sector.
  • Profitability is improving in most sectors. Previous cost cuts and increased volume are resulting in improved margins despite constant prices.

 Region South

  • Activity appears to be picking up in most industries, and the market outlook is positive. Optimism is highest among suppliers to the petroleum industry, wholesale and retail trade and the household service sector.
  • The export industry is experiencing moderate growth in demand, which is attributable to a more favourable exchange rate for the Norwegian krone and cost cuts.
  • Developments for domestically-oriented manufacturing have been stable and are expected to remain so. The construction sector, where public investment is buoying up activity, also reports stable demand.
  • In wholesale and retail trade and the service sector, growth in demand is solid and in some segments gathering momentum.
  • Despite this optimism, there are no signs of any appreciable increase in investment in 2004.
  • Nor are there signs of growth in employment in the region. Many enterprises, particularly in manufacturing, envisage a continued slight reduction in employment as a means of improving efficiency and cutting costs. A slight reduction in employee numbers is also reported in the public sector. Employment in building and construction, wholesale and retail trade and other services is stable.
  • The supply of qualified labour is still ample and turnover is low. There are more complaints that labour is too stable than that turnover is too high.
  • Annual wage growth is expected to remain moderate and to be lower than in 2003. Developments in retail prices and profitability showed a stable to slightly negative trend at the beginning of 2004.

 Region East

  • All business sectors report that developments in demand and output are currently positive, and for most sectors more positive than last autumn. The market outlook for the next six months is also favourable for all business sectors.
  • Both domestically-oriented manufacturing and the export industry report that general business conditions have improved. The same is the case for enterprises providing services to the business sector.
  • Building and construction activity has also increased in the last few months. Within both residential construction and the construction industry demand has increased over a period. There are also signals that the decline in commercial building has come to a halt.
  • Wholesale and retail trade and the household service sector reports that growth is still solid.
  • So far, the positive economic developments have not resulted in plans to increase investment in manufacturing or the service sector. Wholesale and retail trade, however, have plans to increase investment. The public sector also reports some plans to increase investment both in the local government sector and the health sector.
  • The broad-based decline in employment in 2003 has levelled off. However, with the exception of wholesale and retail trade, there are still few who report plans to increase employment.
  • Wage growth is expected to slow from 2003 to 2004 in both the private and public sectors.
  • Continued focus on cost developments combined with growth in demand is yielding higher profitability in large parts of the private business sector. It appears that for many, again with the exception of wholesale and retail trade, the situation is improving from very low levels.
  • Developments in selling prices appear to be largely affected by competitive pressures and extensive customer power. Most enterprises feel that there is very little room for adjusting prices.

 Region North-West

  • The main impression from this round of meetings is that the volume of sales is rising and market prospects have improved for most sectors, with the exception of shipbuilding and the appurtenant supply industry.
  • The depreciation of the krone against the euro has strengthened competitiveness for companies in fishing, furniture and wood products, as well as ship equipment. Companies that have moved production and purchasing out of the country in the last couple of years now seem to be on their way from Europe to the East, particularly China.
  • Wholesale and retail trade has had an auspicious start to the New Year. This may be explained by reduced prices, freed-up capital as a result of lower interest expenses and increased optimism among the general public. The grocery chains seem to be positioning themselves for a lower European price level by initiating cooperation with large European wholesalers/grocery chains.
  • The situation is more favourable for the service sector, especially for services aimed at the business sector which is both spending more on advertising and purchasing more services, such as transport services. The household service sector reports an upswing, e.g. in holiday travel which may be explained by low prices, more optimistic customers and lower interest rates.
  • However, few in the private business sector report plans to increase investment in 2004. The public sector is increasing investment somewhat.
  • Increased employment is only reported in a few cases. Most enterprises wish to maintain a stable level of employment and reduce the wage share by means of automating production processes/improving productivity or outsourcing/contract labour when activities increase.
  • All contacts report that a moderate wage settlement will be decisive for competitiveness. Expectations are substantially lower than the projections made by Norges Bank and the Ministry of Finance.
  • Selling prices and profitability in the private sector have changed minimally since the last report. There is little room for price increases due to intense competition and excess capacity accumulated over the last few years.

 Region North

  • Through most of 2003, activity levels were low for the majority of the region's private sector industries. This changed in the autumn of 2003, and since then demand and output have been rising for most industries. The market outlook for the next six months also indicates solid growth for all business sectors with the exception of domestically-oriented manufacturing.
  • The export industry reports moderate growth in demand. Restructuring and developments in the exchange rate have contributed to growth in the marine sector. High activity in the metals industry is also contributing to increased activity among enterprises providing services to this industry.
  • There is solid growth in demand in the building and construction sector, driven primarily by public sector investment and the Snøhvit project.
  • Activity levels in wholesale and retail trade continued to rise considerably in this period and developments are primarily driven by department stores and the automobile industry.
  • Developments in the service sector are also positive, with the most significant growth for household services.
  • Besides the public sector, where investment growth appears to be solid in 2004, both wholesale and retail trade and other services report plans for moderate increases in investment. Manufacturing, however, has no plans to increase investment.
  • It does not appear that employment is rising either in the private or public sector, except in the building and construction sector which reports moderate employment growth.
  • Selling prices are generally stable, with modest increases for the export industry and the service sector, but a slight decline for domestically-oriented manufacturing. In general, the possibility of adjusting prices is perceived to be very limited due to competitive pressures.
  • There is moderate growth in profitability for building and construction, wholesale and retail trade, and other services as a result of cost cuts and increased activity. Manufacturing is still struggling with earnings.

 Region Central Norway

  • Domestically-oriented manufacturing and the export industry report that output growth is solid and appears to be increasing.
  • Companies that provide services to the business sector have experienced a pronounced increase in demand since summer 2003. The level of output has changed from slightly declining to normal growth in the course of six to nine months.
  • Growth in wholesale and retail trade is strong and stable. Growth is strongest in the capital goods sector.
  • Growth in the building and construction sector has been steady and adapted to market supply in recent years. This development is continuing.
  • The financial situation in the public sector is squeezed.
  • The employment level is stable at a level that is somewhat lower than one to two years ago. It appears that employment is only rising in the retail sector, in particular in connection with new retail outlets. The number of lay-offs has diminished, the number of labour market programmes has increased and the number of job vacancies has stabilised.
  • Many market participants now believe that the growth in the last half year will be sustained. There is increasing optimism and somewhat less focus on cost reductions, but the goal is to accommodate the increased demand without increasing employment.
  • Enterprises in all industries expect that wage growth in 2004 will in any event not be higher than in 2003.
  • Selling prices and profitability are increasing. For wholesale and retail trade, overall inflation is partly influenced by the sharp fall in prices for some products.

 Region Inland

  • Domestically-oriented manufacturing reports moderate growth in its markets. Due to price developments and the competitive situation, there is little change in employment. Manufacturing aimed at the building market reports a moderate increase in demand.
  • The export industry reports that demand growth continues to edge up. Developments in the krone are an important explanatory factor. However, higher demand has had little effect on employment.
  • Companies in the building and construction sector report that demand and volume have been stable or slightly rising in the last three months. Differences between different geographic areas in Region Inland are gradually disappearing. The building sector sees signs of increased activity, particularly with regard to residential construction.
  • The service sector reports increased demand from both the business and household sectors, although growth is still most pronounced in the household sector.
  • In general, increases in manufacturing investment have been relatively moderate in the last year and this trend will continue in 2004. Investment is largely connected with maintenance and measures that contribute to more automated production processes and more highly processed products.
  • Employment is generally stable. Few companies have made major changes in the workforce in the last three months or have plans to do so in the next three months. Relatively better competitive conditions in relation to other countries as well as higher demand for goods and services in the domestic market reduces the need for workforce reductions in manufacturing.
  • The companies in Region Inland expect weaker annual wage growth in 2004 than in 2003. Wage growth continues to be higher in the public sector than in the private sector. In parts of the service sector, there is an increasing tendency towards profit sharing and bonus pay.
  • Price changes have been very modest in most industries. However, the metals industry has signalled a sharp rise in prices as a result of increased global demand, and a 3-5 per cent increase in prices for wood and wood products has also been signalled.

In autumn 2002, Norges Bank established a regional network of enterprises, organisations and local authorities throughout Norway. More about the regional network

Published 11 March 2004 12:49