Norges Bank

Regional network report

Regional network 3/2004

Interview period: May and June 2004

Responsible: Region South-West - Rogalandsforskning

Summary

  • The Norwegian business sector is experiencing positive economic developments with increased optimism. Growth in exports, oil-related manufacturing, construction, retail trade and services for the business sector is gathering pace.
  • Increased global demand with higher prices is providing a substantial impetus for export-oriented process industry. Niche export enterprises are also experiencing solid growth. A high level of offshore investment and the prospect of stable, high oil prices is boosting the oil-related supplier industry.
  • Developments in household disposable income have contributed to increasing demand and consumption for domestically oriented manufacturing, but the growth rate has levelled off.
  • Retail trade is still seeing rising demand. Growth is focused particularly on capital goods such as cars, leisure boats, furniture, goldsmith products, electrical articles and building products.
  • Household demand for services is continuing to grow, particularly in the travel and finance sectors.
  • Brisker business sector activity is leading to increased demand for commercial services such as consulting, architects and temporary personnel.
  • The construction sector is showing a rising growth curve driven by residential construction, rehabilitation and public infrastructure such as schools and roads.
  • Up to the present, economic recovery, improved profitability and a persistent low interest rate level are only contributing to moderately increased investment. The willingness to invest is most pronounced in retail trade, but is increasing most in manufacturing. A declining tendency is noted in the public sector. Region South-West is heading investment growth.
  • There is a moderate tendency to increased employment throughout the private sector. For the first time, the regional network is noting a slight increase in employment in manufacturing. The temporary employment agencies confirm that there is increased demand for labour. There is still a ready supply of labour, but some industries report a lack of highly trained specialists and skilled workers.
  • In 2004, annual wage growth is expected to be 3 per cent in manufacturing, 3.0 per cent in service industries and 3.5 per cent in the public sector.
  • Prices are on the way up in manufacturing and some retail trade segments. First, the economic recovery is enabling many enterprises to achieve far higher prices, and second, more enterprises are trying to raise their prices because of increased costs. No industries are reporting a decline in prices.
  • Profitability is improving throughout the private sector, and most markedly in the export industry, retail trade and services.

Region South-West

  • The economic recovery is broadening and being underpinned by growth in all sectors. Growth is most pronounced in wholesale and retail trade and traditional manufacturing.
  • The market outlook for the next half year is bright for all business sectors, and most positive for the export industry, wholesale and retail trade and construction.
  • Optimism is translating into an increased willingness to invest in the manufacturing sector and in the housing market. In other sectors, investment remains at a normal, average level.
  • Employment is rising in the construction sector, oil-related manufacturing and in some service industries. Temporary employment agencies are recruiting heavily.
  • All business sectors report that the supply of well-qualified labour is still satisfactory, but it is becoming difficult to find some specialists.
  • Prices are edging up. Some export industries are experiencing a sharp rise in prices, whereas construction and domestically-oriented manufacturing report moderate increases.
  • Profitability is improving in all sectors. As a result of cost reductions and higher volume, capacity utilisation has improved and margins are higher. In the export industry, profitability is also driven by higher prices in the global market.
  • Capacity utilisation is relatively high in all sectors.
  • Wage growth in 2004 is expected to be 3%-3.5%.

 Region South

  • Activity is increasing and market prospects for all business sectors are positive. Export-oriented enterprises and wholesale and retail trade report the strongest growth.
  • The export industry reports strong growth, whereas growth in domestically-oriented manufacturing is moderate.
  • The construction sector reports a solid increase in demand, but reports from different contacts differ considerably.
  • The service sector reports solid growth and corporate demand for services is now growing at the same rate as household demand.
  • Demand for consumer durables and capital goods such as cars is increasing sharply.
  • Despite the positive cyclical developments, there are no signs of any appreciable increase in investment in the manufacturing sector. Investment in the wholesale and retail sector, however, is showing moderate growth. Public sector investment remains at a relatively high level, but our contracts report a marked fall as projects near completion.
  • Employment is stable in the region as a whole. In the construction sector, employment is rising moderately, whereas the number of jobs in the public sector is falling slightly.
  • The supply of qualified labour is still satisfactory, but less abundant than earlier.
  • Annual wage growth will remain at a moderate level, lower than in 2003.
  • Retail prices are rising in manufacturing whereas prices are stable in wholesale and retail trade and the service sector.
  • All business sectors report solid improvement in profitability.

 Region East

  • The whole private sector reports solid demand growth, which is expected to continue for the next 6 months.
  • In the export industry, demand growth is most pronounced for the process industry and niche technology enterprises. In manufacturing for the domestic market, suppliers to the construction market report solid growth in demand. Solid growth is also reported in the media sector.
  • Demand for private housing and public investment in non-residential buildings are contributing to an increase in construction activity. However, a somewhat lower growth rate is reported since Easter in demand for new dwellings.
  • Demand growth for retail trade remains solid, and is now greatest for consumer durables. Growth for other services is also solid. Commercial services and the transport and financial sectors report rising demand from the business sector.
  • Increased investment is planned in both the private and the public sector. The planned increase in investment is moderate for manufacturing and services and substantial for retail trade and the public sector.
  • In this round, very few enterprises report a decline, or have plans for workforce cutbacks. However, expectations of an increase in employment are not high either. Only in retail trade and construction do we note an overall moderate increase in employment.
  • The expected annual wage growth for 2004 varies between 3% and 4%. The expected annual wage growth in manufacturing and service industries is a little lower this year than at the same time last year. In the public sector, the expected annual wage growth this year is substantially lower than in 2003.
  • Manufacturing reports moderate to solid price rises due in particular to an increase in commodity prices.. Approximately unchanged prices are reported for retail trade and services.
  • Growing profitability is still reported for all industries.

 Region North-West

  • Expectations of extensive activity in connection with future oil and gas development projects as well as considerable building activity in the public sector and private residential construction still have the most positive effects on the economy in region North-West this period.
  • After a six month period with positive developments, domestically-oriented manufacturing has experienced a slight reduction in output in the period. This may be explained by more cost-conscious and professional customers and increased competition from abroad, but the outlook ahead is described as positive, and improved competitiveness in foreign markets opens up possibilities of increased exports from these companies.
  • Some of the export-oriented manufacturing sectors have had a positive start in 2004 - especially furniture and fish (salmon) - in relation to a stable European market. In the last month, however, growth has levelled off, in particular because the Norwegian krone has appreciated against both the euro and the US dollar and because salmon prices are falling again.
  • Problems at the shipyards persist, whereas marine equipment manufacturing is compensating for a lost domestic market by increasing exports. There is considerable anticipation about whether the expected upturn in offshore activity will generate new orders for marine manufacturing in the next half year.
  • The positive trend in the construction sector appears to have taken hold, with an increase in the production rate and new, large potential assignments ahead. There are many contributing factors: large oil and gas extraction projects, public building, new building and rehabilitation of private dwellings. Private and public sector building may be explained by low interest rates. One stumbling block is still manufacturing's unwillingness to invest in new installations.
  • The previous period's positive trend in sales volume for the wholesale and retail sector continues. Although competition continues to intensify, similar growth is expected in the next six month period.
  • Growth in corporate services has slowed somewhat compared to previous periods, but activity in household services is solid. The travel industry is looking forward to the summer season, which shows promise compared with last year.
  • Investment plans continue to increase in the wholesale and retail trade sector, especially among grocery stores which are mobilising in anticipation of intensified competition. The region's public sector also has plans to increase investment. In manufacturing, an investment that is not related to necessary maintenance is still the exception, and any new investment is connected with product development or increased utilisation of existing resources. Export-oriented enterprises are looking for expansion opportunities abroad.
  • Manufacturing employment appears to be stabilising at a low level after workforce reductions and scaling back in the last couple of years. No one talks about growth in Norway. The service sector alone reports a slight increase in the number of employees. The construction sector is looking forward to a phase of increased employment needs in order to carry out large building projects in the next couple of years. The other sectors plan to increase efficiency and the service level with the same workforce.
  • Due to a prolonged slump for many manufacturing companies, the supply of qualified labour is improving steadily. The construction sector still has some slack and a normal supply of professionals, but anticipates a shortage of qualified workers in our region in the autumn. Wholesale and retail trade and the service sector report that there is still a satisfactory supply of qualified labour in the market.
  • This year's wage settlement is expected to be low. This will have a positive effect on competitiveness. Labour costs are expected to increase by 3% in manufacturing and construction (2.5% in the export industry). Wage growth in the service sector and in wholesale and retail trade is higher, but on average is expected to be approximately 3%. Our contacts in the public sector expect 3.5% wage growth in 2004.
  • The effects of higher prices for imported factor inputs - particularly metal - and transport are being felt. International steel prices have increased 30%-40% this past spring. Most enterprises have limited possibility of passing cost increases through to retail prices. This is primarily due to the competitive situation and leads to reduced growth in profitability. The only companies that expect retail prices to increase more in the next twelve months than in the previous twelve are those with a connection to petroleum activities and the service sector as well as a few in domestically-oriented manufacturing.

 Region North

  • The general impression from this round is increasing demand and output for the region's enterprises. Growth is expected to be at the same level as in the previous round. The exception is household services, a sector that reports slower growth compared with the previous period.
  • The outlook for the next six months suggests that demand will increase at roughly the same pace as in the preceding period, with the exception of the construction sector, which expects higher growth.
  • The public sector and service sectors report that investment plans have remained stable at the level prevailing in the previous period. In manufacturing, particularly in the export and metals sectors, investment plans are increasing. Investment plans in wholesale and retail trade continue to increase, but from a lower level than in the previous period.
  • Employment growth is still moderate in the construction sector and in wholesale and retail trade, whereas employment is virtually unchanged in manufacturing and in the public sector and service sectors.
  • The supply of qualified labour is normally satisfactory, but it is still difficult to recruit health and care providers and managers in the public sector.
  • Annual wage growth for 2004 is expected to be 4% in the public sector, 3.5% in the service sector and 3% in manufacturing.
  • Manufacturing for the domestic market reports rising prices. Prices have risen primarily to cover increased raw material and wage costs. The export industry is still experiencing a rise in prices, although the rate of increase is lower than in the previous period. The long-term trend of stable prices in wholesale and retail trade has been broken, partly because some products have become more expensive due to higher prices for steel and petroleum-based products. Building and construction are increasing their prices somewhat more than in the previous period as a result of increased input costs.
  • Growth in profitability is moderate to solid for all businesses except domestically-oriented manufacturing, where profitability is virtually unchanged.

 Region Central Norway

  • All sectors are reporting growth. A very large number of enterprises consider that their enterprise and industry are now growing at a "normal" pace.
  • Growth remains strongest in retail trade aimed at consumers, and is still stronger for capital goods than for consumer goods.
  • Operators expect the pace of growth in the period ahead to remain in line with growth so far in 2004. The development of the Ormen Lange field is now having a positive impact on enterprises offering technological advisory services and development, and is also expected to have a positive effect on manufacturing.
  • The sharp rise in global market prices for a number of commodities such as steel, oil and coal is influencing various segments of the economy. Producers of commodities and of products that are components of traditional commodities have full capacity utilisation, which has positive spillover effects on services. At the same time, prices for goods that contain steel and oil have commenced what may be a sharp rise. This is raising costs in many manufacturing sectors and in construction, which in turn may push up consumer prices.
  • Employment is largely stable, but there appear to be indications of weak growth in retail trade and services. The supply of IT expertise is not as good as it was only six months ago.
  • The rate of investment in the region is reasonably stable.
  • Sales prices are rising for manufacturing, construction and services. For manufacturing the price rise is due to high consumption and increased prices internationally. Higher construction prices are due to increased prices for intermediate goods, and higher prices for services are compensation for wage growth. In retail trade, prices for many imported goods are still falling, while prices for goods based on commodities are increasing.
  • Wage growth in all sectors appears to be close to 3.5% in 2004.
  • The profitability trend is positive because of the increased level of activity in enterprises.

 Region Inland

  • Manufacturing supplying the domestic market reports solid growth on approximately the same level as in the previous report. The increase is attributable to both sheltered and other domestically oriented manufacturing. The market outlook is favourable, partly due to increased construction activity and strong demand for many consumer goods.
  • The export industry as a whole reports a positive demand trend. A number of enterprises are benefiting from stronger international markets, but some are struggling in the face of sharp competition.
  • Construction enterprises have been experiencing accelerating growth in demand for the past three months. Housing construction and demand from the local government sector in particular are boosting the construction industry. The outlook for the next six months indicates continued solid growth.
  • The service sector is continuing to experience increased demand both from the business sector and from households. Hotels/accommodation, tourism and banking are examples of industries reporting favourable development.
  • Growth in retail trade remains relatively strong.
  • There are few indications of increased investment in the private sector other than retail trade, where investment in the period ahead is projected to increase moderately. The local government sector reports a slight fall in investment plans.
  • Employment now appears to be increasing throughout the private sector in the region. Manufacturing and services report moderate growth, while growth in the construction sector is solid. The local government sector continues to report a slight fall in employment.
  • Price changes have been very moderate in most industries, but there appears to be a cautious trend towards a somewhat stronger rise in prices, driven in part by increased commodity prices and stronger domestic demand.
  • Profitability is improving in most industries. The reason for the improvement is growing volumes and moderate cost inflation, along with a continued sharp focus on rationalisation measures

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

Published 1 July 2004 12:44