Norges Bank

Regional network report

Regional network 4/2005

Interview period: August and September 2005

Summary

Demand, output and market outlook

All industries report growth in demand and output during the last round. The growth rate for domestically oriented manufacturing and the export industry, excluding petroleum-related activities, has been somewhat lower during the last three months than in the previous period. Manufacturing supplying goods to the household sector and the construction industry reports solid growth. The textile industry is struggling and developments in the engineering industry in Region North are marked by reduced activity. In the export industry, there is growth in the technology industry and in the fishing and fish farming industry. The signals from the process industry are somewhat more mixed and we anticipate problems ahead for parts of our energy-intensive manufacturing due to high energy prices. Suppliers to the petroleum industry have experienced strong growth as a result of high oil prices and robust petroleum sector investment. Building and construction report a somewhat lower growth rate than in the last period, and a couple of regions have signalled that the residential housing market is becoming saturated. Growth in activity in service industries is at the same level as during the last round, whereas growth has been somewhat stronger for retail trade.

The market outlook is positive. Reports from the company managers interviewed indicate that growth will be at least as strong six months ahead as the current level. Retail trade is the only sector where market expectations are slightly lower now than in the last round. The somewhat more pessimistic tone perceived in the last round of interviews in the export industry appears to have been short-lived, but the uncertainty surrounding these assessments is considerable.

Capacity utilisation and investment plans

Forty-five per cent of the companies report that they would have some or considerable (11 per cent) problems in accommodating an increase in demand. Comparable figures for the last round were 39 and 14 per cent respectively. The figures show that capacity utilisation is increasing gradually, driven by a broad economic upturn. Parts of petroleum-related activities and the building and construction sector are experiencing capacity problems, but so far, the pressure on factors of production does not seem to be particularly large in the other industries. All industries report plans for moderate to solid growth in investment. Investment growth has been strongest in retail trade and manufacturing. In manufacturing, investment growth has gathered pace since the spring. However, investment growth in the service industries and the public sector has slowed slightly compared with the last round.

Employment and labour market

Employment is also increasing in the entire private sector, in pace with the economic upturn. Figures from this round show that employment growth in construction and retail trade has been somewhat stronger in the last three months, whereas growth has slowed slightly in manufacturing and the service sector. It appears that the positive developments in the private sector will continue during the next three months. It also appears that growth may accelerate somewhat in manufacturing and fall slightly in the rest of the private sector. Employment in the local government and hospital sectors is stable.

Twenty-four per cent of the contacts report that the supply of labour will be a constraint on activity if demand increases. This is in line with the findings in the last round. There is a shortage of qualified labour in building and construction and parts of petroleum-related industries, but otherwise there does not appear to be particularly large pressures on this factor of production nationwide.

Costs, prices and profitability

The general picture is that wage developments are stable. In general, wage pressures appear to be subdued now. Some companies have already incorporated the occupational pension scheme in wage determination. The average projection for annual wage growth in 2005 is 3.5 per cent this round, 0.1 percentage point higher than the last round. There is some growth in annual wages in the other sectors, with the exception of the local government and the hospital sector. The projection in this round is nearly the same as the projection at this time last year.

The companies contacted report a moderate rise in selling prices during the last year in manufacturing, retail trade and other service industries. Developments are favourable for building and construction. The growth rate for domestically oriented manufacturing and the export industry has slowed slightly compared with the previous round. On the other hand, the growth rate is somewhat stronger in building and construction, retail trade and service industries. Fewer companies expect that prices will rise at a faster pace in the next 12 months than in the previous round.

Increased demand, a rise in selling prices and generally low wage pressures are contributing to improving profitability in all industries again in this round. Companies are also making continuous efforts to curb costs in order to strengthen their financial situation.

Region South-West

  • The cyclical upturn is continuing. In most sectors, demand is growing at approximately the same pace as in the previous round. Suppliers to the petroleum industry are receiving an increasing number of orders and the industry is expanding. Developments in this region are largely oil-driven. The level of activity in the building and construction sector remains high.
  • The market outlook for the next six months is positive for all sectors. Optimism is greatest among suppliers to the petroleum industry, retail trade and building and construction. In building and construction, growth expectations have been toned down somewhat compared with earlier.
  • No substantial changes in the level of investment have been recorded. Willingness to invest is increasing in retail trade, whereas manufacturing investment is still rising moderately. The level of investment remains fairly stable in other service industries and the public sector.
  • Employment has increased somewhat, particularly in building and construction, service industries and the public sector. All sectors, except building and construction, are expecting moderate employment growth in the next three months. Four of ten enterprises expect to increase their workforce whereas less than 10 per cent anticipate a reduction.
  • Consistent with the above, an increasing number of companies report substantial capacity problems and problems in accommodating demand growth. The share of enterprises reporting that the supply of well-qualified labour can represent a constraint for future growth is still on the rise.
  • Annual wage growth for 2005 in manufacturing continues to be around 3.5 per cent, whereas annual wage growth is put at about 4 per cent in service industries and the public sector, which is probably a reflection of increased pressures in the sheltered sector of the economy.
  • Domestic manufacturing (excluding suppliers to the petroleum industry) reports falling prices during the last year, whereas suppliers to the petroleum industry and parts of the export industry in particular report a rise in prices. Retail trade and corporate services also report a rise in prices.
  • Domestic manufacturing (including suppliers to the petroleum industry) in particular expect prices to rise at a faster pace in the period ahead.
  • Profitability is still improving in all sectors. For traditional exports, profitability growth is less pronounced than in the previous round.

 Region South

  • All industries report continued growth in activity, and the business sector is faring well. However, domestically oriented manufacturing, the export industry and building and construction report that the growth rate is somewhat lower than in the last round of interviews. Suppliers to the petroleum industry report strong growth in this round. For retail trade and other services, the rate of growth is solid, as it was in the last period.
  • The market outlook is positive in all industries. However, the reports describe greater uncertainty about the future in some segments of the export industry than in the last round. International competition, also from newly industrialised countries, is still rising. Labour-intensive production activities in particular are struggling to be competitive due to the high wage and cost levels in Norway and the strong krone exchange rate. In addition, higher energy prices are threatening the viability of energy-intensive manufacturing.
  • Growth in domestically oriented manufacturing remains solid, but the growth rate has slowed slightly compared with the previous round. The main reason for this is low interest rates which are sustaining household purchasing power and providing favourable operating parameters for the business sector.
  • Among export-oriented enterprises, suppliers to the petroleum industry in particular are reporting the strongest growth. Oil market demand is high and driven by high oil prices and robust petroleum sector investment.
  • Building and construction reports solid growth but a somewhat lower growth rate than in the last round. The growth rate in private residential construction (flats) in particular has been slowing in parts of the region.
  • In retail trade and the services sector, the solid growth from the last round has continued in virtually all the enterprises contacted in this round.
  • Idle capacity in the business sector is diminishing steadily. Most companies in the building and construction sector are producing at or above capacity limits. There is still idle capacity in manufacturing, but the share that respond that they would have some or considerable problems with growth in demand has increased since May.
  • As in the last round, investment is rising in manufacturing and retail trade. Service sector investment is also showing moderate growth now. Public sector investment remains high and stable.
  • Growth in manufacturing employment remains solid. The rate of growth is somewhat stronger in building and construction than in manufacturing, a growth rate that is in line with that observed in the previous round. Growth is moderate in retail trade and solid in the service sector. The number of person-years in the public sector remains relatively stable.
  • Annual wage growth is estimated at 4.0 per cent in manufacturing, building and construction and in service industries. The estimate for retail trade is 3.0 per cent. We find that estimated wage growth for the private sector is higher than the estimate for 2004 made at this time last year, and slightly higher than the annual wage growth reported at the end of 2004. The contacts in the public sector estimate annual wage growth at 3.5 per cent in 2005. This is in line with estimates for 2004 made at the same time last year and with actual wage growth reported at the end of 2004.
  • Selling prices in the last 12 months show a solid increase in building and construction and in corporate services. In manufacturing, retail trade and household services, selling prices are stable.
  • Profitability has improved in all industries with the exception of the export industry where developments are stable. Profitability growth has been particularly solid in corporate services. Improved profitability is driven by increased volume. In building and construction and the corporate service sector, higher selling prices are also making a positive contribution.

 Region East

  • Our contacts in the region report that demand and output growth remains solid. The rate of growth is the same as during the previous round of interviews and is expected to be approximately the same in the period ahead.
  • In domestically oriented manufacturing, demand and output have increased considerably in the last period. Suppliers to the building and construction sector have experienced the strongest growth. The growth rate in the export industry is the same as during the last round of interviews. Solid to strong growth in the technology industry is contributing in particular to pushing up growth.
  • Growth in building and construction is solid and on a par with growth during the previous round. Growth in commercial building and construction is accelerating, whereas the level of residential construction seems to be stable.
  • Growth in retail trade remains solid. As in the previous round of interviews, the building materials sector reports the strongest growth. Growth in the clothing industry is solid, whereas car sales have levelled off and are expected to fall.
  • In the service sector, overall growth is somewhat higher than in the previous round due to higher growth in household services. Expectations are strongest for corporate services. Companies in the telecom industry, temporary employment agencies and transport firms are most optimistic.
  • There is moderate pressure on factors of production. Approximately 30 per cent of the companies will have problems in accommodating unexpected growth in demand. As before, building and construction have the least idle capacity and the supply of labour represents a constraint.
  • Investment in the entire private sector is rising moderately, although at a somewhat slower pace than in the previous round. Only 10 per cent of our contacts have plans to reduce investment in the next six to twelve months.
  • Employment has increased moderately in building and construction and in the service sector. These two sectors are the only ones with plans to increase employment in the period ahead.
  • Selling prices have increased moderately in the last 12 months. On the whole, the rise in prices is somewhat stronger than in the last round, but is marginally weaker than at the same time last year. Roughly 40 per cent of the companies expect the rise in prices to remain unchanged in the period ahead, whereas the same number of companies expects prices to rise at a faster pace as those that expect prices to rise at a slower pace. The share of companies that are expecting prices to rise at a faster pace is lower than in the previous round.
  • Profitability is still improving moderately in the entire private sector. Less than 10 per cent of the companies report lower profitability in the last period.

 Region North-West

  • Domestically oriented manufacturing in Region North-West is experiencing an expansion in all markets. Some report a levelling off at a high level, while the majority are expecting a continued rise in demand during the next six months.
  • Among the export industries, shipyards again have full order books, although some yards have only just reached full capacity utilisation again. Demand is highest for service vessels for oil and gas production and the extremely high demand for deliveries to exploration and development activities is expected to continue next year.
  • The fishing industry is also seeing an improvement and there are solid market prospects for salmon exports after the EU revoked its punitive duty. Furniture manufacturing is experiencing falling sales in some European countries but also a rise in demand from new export markets, and on balance demand is expected to rise.
  • Building and construction is characterised by maximum capacity utilisation, and some projects actually have to be postponed because of capacity constraints. Since the previous round, expectations of increased demand six months ahead have increased.
  • Retail trade is now levelling off, after a steady rise for two years. A further increase in demand six months ahead is no longer expected.
  • Production in the service sector is still growing, but more slowly than in the previous period. The sector still expects moderate demand growth in the next six months. Following a period of strong demand growth, there is uncertainty about the housing market in the period ahead.
  • The public sector is still seeking to raise productivity and carry out the necessary infrastructure investments. There is now less focus on workforce reductions.
  • Employment increased during the last period, and demand for labour has increased particularly in building and construction and retail trade. Foreign labour is accounting for a steadily higher share of those employed. Manufacturing employment has increased in pace with the upturn, while unemployment in the health care sector has actually increased by 40% in Møre og Romsdal this year.
  • Since the previous round, the estimate for annual wage growth has been raised for manufacturing and services but revised downwards for building and construction. The latter may be partly due to lower wage demands from foreign workers.
  • Most sectors report moderate price rises and expectations of unchanged price increases in 2006. The export industry is experiencing the sharpest rise in prices, and this may be related to more expensive factor inputs in world markets. Strong competition and cheap imports are restraining prices. There are minor changes in profitability.
  • Capacity utilisation is somewhat higher than in the previous round, and for half of the contacts, the supply of labour represents the bottleneck, as in the previous round.

 Region North

  • Demand and output are continuing to grow in all sectors of Region North in this round. Moderate growth is reported for the export industry, which implies a lower growth rate than in the previous round. Growth in the export industry growth is expected to be moderate in the next six months.
  • Domestically oriented manufacturing reports solid growth. The growth rate has increased since the previous round, and in the next six months is expected to be solid and rising for this industry sector.
  • The building and construction sector reports solid growth, with prospects of the same growth level for the next six months. Retail trade reports moderate growth, somewhat slower than in the previous round. This growth rate is expected to remain unchanged for the next six months.
  • There is solid growth in demand for both household and corporate services. Growth in services is expected to remain solid for the next 6 months.
  • Solid investment growth is reported in the public sector and in manufacturing. Retail trade and service industries are expecting moderate growth in investment.
  • Manufacturing employment is reported to be unchanged. Some manufacturing segments have had problems during this last period, and overall employment in the engineering and process industry has been cut back as a result of closures and layoffs. The public sector reports a reduction in employment. In building and construction and services, employment has increased moderately as a result of higher demand and output. A moderate increase in employment in building and construction and some manufacturing segments is expected in the period ahead. The overall supply of qualified labour is satisfactory.
  • A solid rise in prices over the past 12 months is reported for domestic manufacturing and construction. Prices in other sectors have risen moderately. Most contacts tend to expect the rise in prices to remain unchanged in the period ahead. A slower rise in prices is expected in the export industry.
  • Manufacturing, construction and services report moderate profitability growth. Retail trade reports stable profitability.

 Region Central Norway

  • The general picture is one of moderate to solid growth in all industries. Manufacturing is now showing signs of stronger growth.
  • There is still a high level of activity in building and construction, but growth is slower and there are expectations now that growth is coming to a halt.
  • Retail trade is experiencing generally low growth, while the rate of growth in services appears to be rising.
  • Our contacts are optimistic concerning developments in the next half year. The majority expect a growth rate in line with developments so far this year, while stronger growth is expected this autumn for manufacturing and suppliers to the petroleum industry.
  • Employment is rising in manufacturing and the service industries, but otherwise is largely stable. Growth in the number of advertised vacancies, particularly in the media, may indicate that employment growth, which has been steady for a long time, is now causing a somewhat tighter labour market.
  • Manufacturing and service industries are reporting lower idle capacity now. Half of our contacts across all industries do not have production capacity available to meet demand growth in the period ahead.
  • Growth in investment plans in the region is moderate. Public sector investment now appears unlikely to increase in the period ahead.
  • Wage growth is expected to be close to 3.5 per cent in all industries except manufacturing, where it will be somewhat lower.
  • Selling prices are rising slightly in most industries. There appear to be no prospects of retail prices rising, but prices for household services are showing a moderate rise.
  • Profitability is variable, but positive for most companies. The most commonly cited reason is growth in volume. Growth is most pronounced in services where there has also been a rise in prices.

 Region Inland

  • On the whole, there has been growth in demand in Region Inland during the last period. It is our opinion that the overall growth rate is approximately the same as in the last two rounds.
  • The market outlook remains favourable for all industries in the region, and the majority of companies expect growth in demand.
  • In domestically oriented manufacturing, growth remains solid though somewhat slower than in the previous round. The outlook indicates continued growth in the building materials industry, among others.
  • The export industry has reduced its output somewhat since the last round of interviews. The decline is due both to reduced foreign demand and a stronger Norwegian market which reduces exports, cf. the lumber industry. The outlook ahead indicates that output will stabilise in the next few months.
  • Activity continues to increase in building and construction. Growth is expected to remain solid, approximately the same as in the last period. There is a wait-and-see attitude about future developments, however, in anticipation of rising interest rates through the autumn/winter.
  • In retail trade, growth is somewhat stronger than in the previous round. Expansion in the building market is pushing up growth. Car sales are also rising.
  • Demand in the service sector remain solid and the growth rate is at approximately the same level as in the previous round.
  • The economy in the region is still far from capacity limits. Some manufacturing segments, however, are experiencing capacity pressures, in particular building and construction. The supply of highly skilled labour is a problem for some service companies.
  • Investment is increasing in most companies. Investment is rising in all sectors and gaining pace in manufacturing, retail trade and the public sector.
  • Employment is increasing in the entire private sector with the exception of manufacturing where there has been a slight decline in the last three months. A moderate increase in employment is expected in building and construction, services and retail trade in the period ahead. Manufacturing and the public sector expect employment to be stable.
  • Wage growth is projected at about 3.5% for manufacturing, building and construction and the public sector and somewhat lower for the service sector and retail trade. Wage growth is at roughly the same level as during the last round and at this time last year.
  • The rise in prices is about 2 per cent in most industries, whereas in building and construction the rise in prices is somewhat higher. On the whole, the rise in prices is approximately in line with the previous round. Expectations concerning price increases are more modest than in the previoius round, and the number of companies expecting a lower rise in prices currently outnumbers those that expect a higher rise.

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

Published 2 November 2005 12:25