Norges Bank

Regional network report

Regional network 2/2005

Interview period: March 2005

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

Summary

  • All industries report solid growth in this round of interviews. Petroleum-related manufacturing, the export industry, building and construction as well as corporate services report strong growth. Retail trade and household services report solid growth. The growth rate for these business sectors is slowing somewhat compared with the last round.
  • All industries are expecting solid growth during the next six months. In the service sector, growth is expected to be most pronounced for enterprises providing services to the corporate sector. Petroleum-related manufacturing expects strong growth in the period ahead.
  • In this round, less than 40 per cent of the companies interviewed reported that meeting an increase in demand would be a problem. Capacity constraints are most pressing in the building and construction sector. In this sector, sixty per cent of the companies reported problems of this kind. The comparable figure for manufacturing is 40 per cent. Labour shortages and a shortage of real capital are responsible for capacity constraints.
  • Both the private and public sectors report moderate growth in investment. A substantial share of manufacturing investment is now being used to increase capacity.
  • Employment has increased moderately in manufacturing, building and construction and retail trade. The entire private sector expects moderate employment growth during the next three months.
  • Annual wage growth in 2005 is projected at 3.6 per cent. This is 0.3 per cent higher than the projection for wage growth in 2004 made at this time last year.
  • All industries report a moderate increase in prices during the last 12 months. Retail trade is the exception and reports that prices have remained unchanged. The increase in prices is most pronounced in building and construction. All sectors report that profitability continued to improve during the last period.

Region South-West

  • Demand is growing in all sectors, and the rate of growth is approximately the same as at the beginning of the year. Growth in the building and construction sector is particularly strong, driven primarily by residential construction and infrastructure.
  • The market outlook for the next six months is positive for all sectors. However, optimism is somewhat subdued compared with the last report. The exception is building and construction, where prospects are still very favourable.
  • The outlook for the future and increased profitability are reflected in a slowly increasing willingness to invest. Oil- and gas-related investment will reach a new peak in 2005.
  • Employment is increasing in building and construction, manufacturing for the domestic market, petroleum-related manufacturing and in corporate services. Nearly all sectors are expecting moderate or no growth in employment in the next three months. The exception is the building and construction sector, where employment requirements are increasing appreciably.
  • Both the public and the private sector expect annual wage growth of 3-3.5 per cent.
  • As in the previous round, nearly one-third of the contacts indicate that the supply of well-qualified labour may impose a constraint on continued growth in output. The building and construction sector and petroleum-related activities face the greatest challenges.
  • Export- and petroleum-related industry, household services and building and construction report moderately higher prices. Building and construction prices are being driven up by labour shortages.
  • Profitability continues to improve in all sectors except domestically oriented manufacturing. As a result of cost reductions and higher volumes, capacity utilisation has improved and margins are higher.
  • Half of all companies report that they would have some or considerable capacity problems if demand increased. As in the previous reporting round, this applies in particular to petroleum-related manufacturing and building and construction.

 Region South

  • All sectors report solid growth.
  • The market outlook is positive, but the export industry and building and construction are less optimistic than in the previous round. However, there is a little more optimism in retail trade and services than reported in February.
  • There has been solid growth in manufacturing in the last quarter. The building and construction sector reports somewhat more subdued growth than in the previous period.
  • Growth in retail trade and services for both the household and the business sectors has been solid during the last period.
  • The building and construction sector is producing at close to capacity. A shortage of skilled labour is the principal bottleneck. There is still some excess capacity in manufacturing, although a number of companies are operating at or above capacity, whereas there is substantial excess capacity in service industries and retail trade.
  • Investment in manufacturing is showing a positive trend, while investment growth in retail trade is moderate. The level of investment in service industries and the public sector is stable.
  • A moderate rise in employment is reported in manufacturing and building and construction, while employment in retail trade and services is stable. Despite forewarnings of rationalisation in the municipal sector, the number of person-years in the public sector remains fairly constant.
  • Expected annual wage growth in both the public and the private sectors is around 4 per cent for 2005. For the private sector, this is somewhat higher than expectations a year earlier for 2004, and slightly higher than the annual wage growth reported at the end of 2004.
  • Selling prices have risen somewhat in manufacturing and fallen slightly in retail trade in the last 12 months. Prices in building and construction and other service industries have been stable. In the export industry, prices are expected to rise at a somewhat slower pace in 2006, while a reasonably stable trend is expected in the other industries.
  • Profitability is improving in all industries. Domestically oriented manufacturing, building and construction and service industries report the strongest growth in profitability.

 Region East

  • Both output and demand continue to grow in Region East, and not a single company reported a fall in demand during the last reporting period. Companies are optimistic regarding the next six months and expect roughly the same growth rate in the period ahead.
  • Demand and output in the export industry have increased at a higher rate than in the previous round, with the technology industry providing the impetus. The activity level in the process industry remains satisfactory, but growth has slowed somewhat. In the domestic market, suppliers to the building and construction sector report the strongest growth.
  • Continued strong growth is reported for building and construction, but with prospects of a somewhat lower growth rate in the period ahead. Some of our contacts foresee a levelling off of residential construction during the spring and declining growth after the first quarter. Moderate growth is expected in commercial building activities.
  • Slightly slower growth is reported in this round for retail trade. Car sales have levelled off and are pushing down the growth rate. However, sales of building materials are increasing sharply. Moderate to solid growth is reported for other consumer goods such as clothing, jewellery and electrical articles.
  • There is strong business sector demand for services. Our contacts in the financial, legal, promotion and IT sectors report solid to strong growth during the last period. In the household services sector, the restaurant and travel industries report solid growth.
  • The pressure on factors of production is reported to be moderate, as in the previous round. The exception continues to be building and construction, where the labour supply constitutes a constraint.
  • All industries report moderately increasing investment. Only 10 per cent of the companies plan to reduce their investment in the next 6-12 months. The share planning an increase is largest in retail trade and in manufacturing.
  • During the last period, employment has increased moderately in building and construction and in retail trade. In the period ahead, employment in the private sector appears likely to increase a little, with the exception of manufacturing, where a continued decline is expected.
  • Selling prices have increased moderately in manufacturing, building and construction and household services during the last period. The share expecting an unchanged rise in prices is largest. Signals regarding an increasing rise in prices are therefore less clear-cut than in the previous round.
  • Profitability is improving in all industries and, on balance, at a slightly increasing pace.

 Region North-West

  • In Region North-West as a whole, capacity utilisation is satisfactory and activity levels continued to rise during the last reporting period. Private consumption and offshore-related investment demand are important driving forces. On balance, the market outlook is positive.
  • The export industry and offshore-supply industry report strong growth in volume. Activity levels are high, particularly in shipbuilding and marine equipment manufacturing, and will remain high during the next year. On the other hand, parts of the fishing industry are experiencing strong competition from China.
  • Domestically oriented manufacturing reports moderate growth on average. Suppliers to the building industry and consumer-oriented manufacturing providing goods to the domestic market report solid growth.
  • Seasonally-adjusted growth was solid in the building and construction sector in the last period. Growth in residential construction continues in the region.
  • Retail trade reports moderate growth and expects solid growth during the next six months. New car sales have declined slightly during the first months of the year due to a shift in sales to the last part of 2004 in anticipation of a rise in value-added tax in 2005.
  • Growth in demand for both household and corporate services is solid. The hotel industry reports growth in advance reservations for the next six months. The rest of the service industry also reports a favourable market outlook.
  • The private sector reports a moderate increase in investment, while investment in the retail trade sector continues to be somewhat stronger.
  • Employment has risen somewhat in the last period. Manufacturing and building and construction anticipate the use of more flexible labour in the next three months. Shipbuilding and marine equipment manufacturing report increases in the workforce and a tighter local labour market.
  • In most industries, selling prices have increased by 1-2 per cent in the last year. Higher commodity prices in the global market contribute to explaining the increase in prices, whereas the somewhat sharper rise in prices in the building and construction sector may be attributed to higher activity levels. Intense competition, both in Norway and abroad, generally has a dampening effect on price inflation. Roughly 35 per cent of the contacts expect higher price inflation in the period ahead, while 53 per cent expect price inflation to remain unchanged during the next 12 months. Very few contacts expect prices to fall.
  • Annual wage growth for 2005 is expected to be 3.5 per cent on average.
  • Profitability is improving in most industries.

 Region North

  • In this round of interviews, all sectors in the region report continued growth. Domestically oriented manufacturing reports solid growth and the export industry reports strong growth. Both domestically oriented manufacturing and the export industry expect the growth rate to remain unchanged during the next six months.
  • The building and construction sector report continued moderate growth during the period with prospects of somewhat stronger growth in the period ahead. Retail trade reports solid growth, with no change since the last round. This trend is expected to continue for the next six months.
  • There is moderate growth in demand for both household and corporate services. This growth is expected to level off in the next six months. Engineering consultancy services aimed at the building and construction sector is an exception. These services have experienced stronger growth in the period and expect continued growth in the next six months.
  • The public sector reports very strong growth in investment. Manufacturing and retail trade are expecting solid growth. The investment rate is moderate in the service sector.
  • Manufacturing reports growth in employment, as a result of higher demand. The public sector reports a continued reduction in employment. Employment in building and construction, services and retail trade is unchanged compared with the previous period. The supply of qualified labour is satisfactory and seldom represents a constraint on output.
  • Manufacturing and corporate services report that prices have increased during the last 12 months. Prices have been stable in the other industries.
  • The export industry reports strong growth in profitability, while domestically oriented manufacturing reports solid profitability growth. There has been a moderate decline in profitability in the building and construction sector since the last round, whereas profitability has remained stable in retail trade and the service sector.

 Region Central Norway

  • All industries report solid growth. There is cautious optimism about the rest of the year and confidence that the growth rate will remain stable.
  • The fish farming industry has reported considerable growth in turnover recently. Manufacturing producing goods and services for the building and construction sector also reports solid output growth. The printing and publishing industry is still in decline.
  • In the building and construction sector, the activity level is high but the growth rate appears to be slowing now.
  • Growth in turnover is stable in retail trade due to an increase in the number of retail outlets. Developments in service industries are generally favourable, although there is no growth in demand for research and development services. Persistent growth in household borrowing is generating growth in the financial industry.
  • Employment is largely stable, although a number of companies report some increases. This trend is expected to continue in the period ahead. The building and construction sector is employing some foreign labour in response to a tight labour market. In the service sector, there are signs that the labour supply will become somewhat more limited.
  • Manufacturing and retail trade report excess production capacity. Service companies report wider variations, and in the building and construction sector, a lack of skilled labour is limiting growth potential.
  • The level of investment in this region is relatively stable. Investment activity in the public sector appears to be somewhat lower in 2005 than in 2004. In manufacturing and services, there are signs of increased investment activity.
  • Tender prices are rising slightly in the building and construction industry as a result of increased costs and a higher level of activity throughout the country. In retail trade, there has been little or no change in prices on average. Prices have risen slightly in manufacturing and service industries.
  • In the private business sector, wage pressures appear to be subdued and wage growth is expected to be 3%-3.5% in 2005. Wage growth is expected to be somewhat higher in the public sector.
  • Profitability is improving due to increased activity, but there are no major changes for small and medium-sized enterprises.

 Region Inland

  • All industries in Region Inland report increasing activity. Overall growth is somewhat lower than in the last round. The market outlook is positive and indicates steady growth in the period ahead.
  • Output and demand in manufacturing appear to be declining somewhat, but this may also be due to the selection of companies interviewed. In domestically oriented manufacturing, consumer-oriented companies and the building supply sector report the strongest growth. The region's manufacturing industry expects continued growth.
  • The building and construction sector report continued strong growth in demand due primarily to extensive residential construction in the cities, the building of holiday cottages and continued strong demand from the municipal sector. The outlook for the next six months indicates that growth will remain solid.
  • Service industries report generally positive developments in both the corporate and household sectors, e.g. for banking/finance and travel services.
  • Retail trade has recorded somewhat weaker growth due to a decline in car sales. Growth is expected to pick up somewhat in the months ahead.
  • The economy in the region is far from capacity limits, with the exception of the building and construction sector. In this sector, labour shortages are viewed as a constraint. The supply of highly skilled labour is a problem for some service companies.
  • The investment level in the private sector shows signs of increasing after having been relatively stable. This applies in particular to retail trade and the service sector, as well as building and construction.
  • Employment is rising in building and construction. It appears that the number of employees in manufacturing could increase slightly. Employment is fairly stable in retail trade and the rest of the service sector.
  • Selling prices have increased moderately in the last year. The rise in prices is expected to accelerate somewhat in the period ahead, due in part to higher commodity prices which are passed on to consumer prices.
  • Profitability is improving slightly in most business sectors, but when all industries are considered as a whole, the rate is slowing somewhat.

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

Published 20 April 2005 12:34