Norges Bank

Regional network report

Regional network 2/2006

Interview period: March 2006

Summary

Overall growth is solid in all industries and all regions. Growth is strongest in building and construction, service industries and suppliers to the petroleum industry. Domestically oriented manufacturing companies that are supplying goods to the business sector report solid growth. Suppliers of building materials, and packaging and office furniture manufacturers report continued growth in output, and in Northern Norway the shipbuilding industry reports growth. The feedback from the food industry is mixed, but there is growing demand for low-fat and low-sugar products. The export industry also reports continued solid growth. The fish farming industry, segments of the process industry, suppliers to the telecom industry and the shipbuilding industry all report growth. The signals from the process industry are mixed. High prices have resulted in growth for aluminium, iluminite and iron ore, while high energy prices have resulted in a reduction in ferrosilicon production. Along the coast up to Central Norway, suppliers to the petroleum industry report continued strong growth, stronger than in the previous round. As in the previous round, there is solid growth in building and construction. Residential construction activity is still high and there is solid growth in construction, commercial building and public building. Growth remains solid in retail trade. There is solid growth in sales of building materials, electronics and furniture, whereas growth in clothing and car sales is more moderate. The service sector, especially corporate services, report solid growth. Consulting services aimed at building and construction and the petroleum industry report strong growth, and widespread growth in the business sector is increasing the demand for hotels and services such as IT, auditing, lawyers and financial advice.

The market outlook is generally favourable. On the whole, growth is expected to remain solid during the next six months. Suppliers to the petroleum industry expect strong growth in the period ahead, while the other industries expect solid growth. Suppliers to the petroleum industry and building and construction expect lower growth in the period ahead than in the last period, whereas service industries expect the growth rate to increase.

Capacity utilisation and investment plans

49% of the contacts report that they would have some or considerable difficulties accommodating an increase in demand. This is the same percentage as in the previous round, but higher than in autumn 2005, and a larger number of contacts indicate that the labour supply is a constraint. Labour shortages are most pronounced in building and construction and service industries. All industries report moderate growth in investment plans, with the exception of the local government and hospital sectors, where investment growth is solid. The local government sector in particular reports increased investment.

Employment and labour market

There is no growth in employment in retail trade, but the other industries report moderate employment growth. Compared with the previous round, there is lower growth in employment in service industries and building and construction. Employment in the local government and hospital sectors has remained unchanged in the last year but appears to be increasing moderately now. All sectors expect moderate growth in employment in the next three months, with the exception of building and construction, which expects solid growth. 39% of the contacts report that the supply of labour will be a constraint if demand increases. This is a higher percentage than in the previous round. Labour shortages appear to be most pronounced in building and construction, although many sectors report that engineers in particular are difficult to find.

Costs, prices and profitability

Annual wage growth is expected to be between 3.5% and 4.5%. The highest wage growth is expected in service industries. Compared with the previous round, retail trade and service industries have adjusted expectations upwards, while building and construction have adjusted expectations downwards somewhat. Many contacts report expectations of strong wage growth for some groups.

All industries report that the rise in prices is the same as in the previous round. This means that prices continue to rise in building and construction, whereas prices are stable in the retail sector. The remaining industries report a moderate rise in prices. All industries, with the exception of household services, expect a higher rise in prices in the next 12 months than in the previous 12 months. Only retail trade and household services expect a lower rise in prices now than in the previous round. The greatest change is reported by corporate services where a larger number of contacts expect a higher rise in prices during the next 12 months than in the previous rounds.

Profitability is improving in all industries. The offshore industry stands out with strong profitability growth. Domestically oriented manufacturing and building and construction report moderate growth in profitability compared with solid growth in the previous round. Contacts in the export industry and the service sector report solid growth in profitability.

Region South-West

  • The cyclical upturn is continuing. The activity level for building and construction and suppliers to the petroleum industry remains high. The rate of growth in domestically oriented manufacturing, retail trade and corporate services has gathered pace.
  • The market outlook for the next six months is optimistic in all sectors, and most markedly among suppliers to the petroleum industry.
  • Investment is expected to increase in all sectors, inspired by market opportunities, solid earnings and solutions to capacity problems.
  • Employment is increasing in all sectors except the export industry. The labour market is considerably tighter than it was six months ago. Six of ten businesses report that labour shortages are limiting their possibilities of expansion. The situation is most uncertain for building and construction and petroleum-related companies. The public sector is also having problems with recruiting to some job categories.
  • Labour shortages have increased in the last six months. This is the case for engineers, economists, accountants and some other professional groups.
  • Expected annual wage growth for 2006 is 4% in all sectors except corporate services, which expects 4.5%.
  • The rise in prices has accelerated in the past 12 months, particularly in building and construction and petroleum-related industry. The latter industry expects the same rise in prices in 2006, while expectations in building and construction are mixed.
  • All sectors except the export industry report positive developments in profitability. Petroleum-related industry reports the most pronounced improvement. Domestically oriented manufacturing, corporate services and building and construction also have every reason to be satisfied.

 Region South

  • Domestically-oriented manufacturing reports solid growth and a somewhat higher growth rate than in the previous round. The reports come from installers of pipelines and mechanical and electrical equipment, holding companies for building materials manufacturers and shipyards. The export industry reports continued solid growth. This applies to the process industry, shipbuilding, engineering companies and plastic packaging manufacturers. Suppliers to the petroleum industry report solid growth again in this round again. The favourable trend in the previous round continues for building and construction, retail trade and household services. Growth in corporate services remains strong.
  • The market outlook is generally favourable. However, suppliers to the petroleum industry expect strong growth during the next 6 months. Growth in commercial services will also remain strong in the period ahead. In manufacturing, there are some sectors that are struggling with competition from new low-cost industrialised countries.
  • There is increasingly less idle capacity in the Norwegian economy. The capacity to accommodate an expected or unexpected increase in demand has diminished compared with the previous round. Capacity problems are increasing in manufacturing, where there are reports of capacity constraints at shipyards and wood product suppliers/manufacturers. Engineering companies are struggling to recruit professional and management expertise. The building and construction sector is producing at close to or above capacity. Until now, there has been relatively limited use of non-national contract labour in this industry in Region South. This situation is changing now.
  • Investment is increasing in the Norwegian business sector. There is broad-based investment in manufacturing, in both domestically oriented manufacturing and in the export industry, and across sectors. Production facilities are to be expanded, and extensive product development is under way. Developments in retail trade and service industries are moderate, while investment growth in the local government and hospital sectors is solid.
  • Private sector employment is rising. Manufacturing employment is particularly favourable, in both domestically and export-oriented manufacturing, in building and construction and now also in service industries. Employment growth is moderate in retail trade, and stable in the local government sector overall. It appears that this trend will continue in the next quarter.
  • Annual wage growth is estimated at 4.0% in manufacturing. The estimate for building and construction and service industries is 4.5%. Contacts in the local government and hospital sectors estimate annual wage growth at 3.5% in 2006. Expected annual wage growth in manufacturing is the same now as it was a year ago, while expectations for building and construction and service industries are half a percentage point higher, and for the local government and hospital sectors one percentage point higher than in the same round last year.
  • All industries report a rise in selling prices during the last year, with the exception of retail trade, where prices have been stable. The export industry reports the sharpest rise in prices. The contacts expecting prices to rise at a faster pace outnumber those expecting prices to rise at a slower pace over the next year.
  • The business sector in Region South is prospering. Improved profitability is being driven by increased volume in all industries and by higher selling prices, particularly in manufacturing, building and construction and corporate services.

 Region East

  • Our contacts in Region East report that demand and output growth are still solid. The last three-month's growth is expected to continue in the period ahead.
  • Domestically oriented manufacturing reports solid growth in demand and output during the last few months. Suppliers to building and construction report the strongest growth. The growth rate is solid in the export industry.
  • Growth is solid in building and construction and on a par with growth in the previous round. Fewer housing starts are expected in the period ahead, whereas solid growth is expected in commercial building and construction.
  • Growth in retail trade is moderate and weaker than in the previous round. Building materials, electrical goods and luxury clothing are pushing up growth, while cars and less expensive clothing have a dampening effect.
  • Growth remains solid in service industries. The finance, consulting and architect industries as well as temporary employment agencies report the strongest growth.
  • 43% of the companies will have problems accommodating unexpected growth in demand. This is a larger percentage than earlier. As before, the building and construction sector has the least idle capacity and the supply of labour is the most important constraint.
  • Retail trade reports moderate growth in investment. The local government and hospital sectors expect solid growth.
  • In the last three months, employment has increased in service industries and in the local government and hospital sectors. All sectors except manufacturing have plans to increase employment in the period ahead.
  • The contacts in this round expect annual wage growth to be approximately 4ΒΌ% this year. This is a somewhat higher figure than in the last round, which may primarily be explained by expectations of higher wage growth in retail trade and service industries.
  • Overall, prices have risen more sharply than in the previous round. In the last 12 months, domestically oriented manufacturing, building and construction and corporate services have reported rising prices, while the export industry has reported falling prices. Roughly 40% of companies expect prices to rise at a faster pace in the period ahead, 40% expect prices to remain unchanged, and 20% expect prices to rise more slowly. The percentages are roughly the same as in the previous round.
  • Profitability is still improving in the entire private sector, with the exception of retail trade. About 70% of the contacts report improved profitability in the last period. The strongest improvement was reported by the export industry and service industries.

 Region North-West

  • Manufacturing reports continued solid growth in volume in most markets. The fishing industry, and the fish farming industry in particular, report rising production volume and demand. As before, the oil and gas sector reports the highest demand. Domestically oriented manufacturing is benefiting from increased demand from the export industry, while consumer-oriented manufacturing, and the food industry in particular, is marked by intense competition.
  • Demand growth in the petroleum sector continues to increase, and the horizon for further growth has been extended. New offshore vessels are now being ordered for delivery around 2010. It is shipyard capacity that is now placing constraints on further growth. In addition, building and construction continue to experience substantial demand for services related to onshore investment - with the Ormen Lange project as the most important driving force.
  • The building and construction sector is operating at full capacity and is also employing a large amount of contract labour. The sector continues to experience considerable demand from manufacturing, the public sector and private housing. The growth will have to level off because there is no more capacity to be found.
  • Retail trade reports moderate growth and expects developments to remain the same during the next six months. Competition is intense and prices are under pressure. Investments are being made in more attractive premises.
  • Service industries report continued growth in volume and increased demand from both the business and household sectors. The outlook for the next six months is positive.
  • There is investment in all sectors. In the public sector, the school reform is demanding the largest number of initiatives.
  • The number of employees is not increasing in step with the increased production volume and demand, and this is due to a large degree of contract labour, especially from the new EC member countries (particularly Poland and the Baltic countries). Nearly half of the companies are using foreign labour to deal with peaks and because there is a shortage of qualified labour in the region. There is a substantial shortage of project managers and engineers in manufacturing, building and construction and the public sector.
  • There is considerable uncertainty about the ongoing wage negotiations and annual wage growth is expected to vary from 3% in the public sector to 4.5% in service industries. The introduction of compulsory occupational pensions and the use of foreign labour provide a buffer against wage pressures that are created by considerable demand for a range of professional categories.
  • Cheap imports and strong competition in an increasingly professional market continue to dampen the rise in prices, and the majority of contacts do not expect prices to rise at a faster pace during the next year. Nevertheless, the majority of contacts expect a slight improvement in profitability, due in particular to solid capacity utilisation. The offshore industry reports the most substantial improvement in profitability.

 Region North

  • Growth in demand and output continue in Region North. The export industry reports solid growth, and the growth rate has risen since the previous round. Solid growth is expected during the next 6 months.
  • Domestically oriented manufacturing reports solid growth. The rate of growth is the same as in the previous round and is expected to remain the same during the next six months.
  • Building and construction report moderate growth, and the growth rate is somewhat more sluggish than in the previous round. Solid growth is expected during the next 6 months.
  • Retail trade reports solid growth. The growth rate has increased since the previous round. Solid growth is also expected during the next 6 months.
  • Corporate services report solid growth in demand. Growth is at the same level as in the previous round. The growth rate for household services is moderate and at the same level as in the previous round. Service industries expect solid growth during the next 6 months.
  • Manufacturing as well as the local government and hospital sectors expect solid growth in investment during the next 12 months. Retail trade and service industries report zero investment growth.
  • Employment growth has remained unchanged in all sectors in the last three months. In the period ahead, moderate employment growth is expected in manufacturing, building and construction and service industries, while employment is expected to remain unchanged in retail trade and the local government and hospital sectors.
  • There is a relatively good supply of labour to all industries with the exception of building and construction, where there is a shortage of specialised engineers, skilled workers and machine operators.
  • In addition to wages, cost increases are dominated by the effects of higher prices for oil and energy as well as for raw materials for the fishing and fish farming industries. The effects are most pronounced in manufacturing and the transport sector.
  • The export industry reports a solid rise in prices over the last 12 months. There has been a moderate rise in prices in domestically oriented manufacturing, building and construction and service industries. In retail trade, the rise in prices has remained the same. Expectations of a sharper rise in prices are most pronounced in manufacturing.
  • Manufacturing and service industries report solid profitability as a result of increased demand and sales of services. Profitability is moderate in building and construction and retail trade.

 Region Central Norway

  • All industries report growth. Suppliers to the petroleum industry and corporate services report the strongest growth. The rate of growth appears to be increasing in service industries. There is optimism about the next half year and confidence in continued growth. Service industries and suppliers to the petroleum industry expect the strongest growth in the period ahead.
  • It appears that all industries, with the exception of retail trade, are increasing investment. Construction of day-care centres is pushing up investment in the local government sector. Investment is still high in the service sector, but high investment over the past year is contributing to lower growth in the period ahead.
  • Employment is rising in the region and unemployment is at its lowest level for five years. Employment appears to be stable in manufacturing and retail trade, while there is clear growth in employment in building and construction and service industries. There are clear indications of growth in local government employment and this is expected to continue in the period ahead.
  • Developments in idle production capacity appear to be stable, but the shortage of skilled labour is to a greater extent than before being perceived as a constraint on output growth.
  • Annual wage growth is expected to be 3-3.5%, except in service industries which are expecting wage growth of 4.5%. Due to a shortage of different kinds of competence, there are indications of stronger wage pressures for some occupational categories.
  • Services industries report a solid rise in prices and some sectors report a sharp rise. In building and construction, there are more indications than before that prices are rising now. In retail trade, the rise in prices still appears to be moderate.
  • In general, profitability is improving. Retail trade reports that profitability is unchanged, while building and construction report that profitability has improved. The export and service industries report solid improvement in profitability.

 Region Inland

  • On the whole, there has been growth in demand in Region Inland during the period. It is our opinion that the overall growth rate is somewhat lower than in the last two rounds. This is particularly the case for service industries and manufacturing.
  • The market outlook is still relatively favourable for all industries in the region, more or less as in the previous round. A majority of companies are expecting growth in demand.
  • As in previous rounds, there is limited capacity in building and construction due to a shortage of skilled labour. There is also a shortage of competent personnel in some service industries.
  • The investment level continues to rise somewhat in service industries and manufacturing. Investment growth has slowed somewhat in manufacturing.
  • Employment has risen slightly in the entire private sector, with the exception of service industries. Growth is strongest in building and construction. Developments are expected to remain virtually unchanged in the period ahead, although a weak decline in employment is expected in manufacturing.
  • Projected wage growth is at approximately the same level as in round 2 of 2005. As in the previous round, a number of companies reported that they expected this year's wage settlement to be somewhat higher than in 2005.
  • The rise in prices is roughly in line with the previous round for all industries, except the export industry and household services, where prices have risen somewhat more sharply.
  • The number of companies that expect prices to rise at a faster pace in the next 12 months has increased compared with the previous round. Companies that expect prices to rise at a faster pace outnumber companies that expect prices to rise at a slower pace.
  • Profitability is improving slightly in most business sectors, except in manufacturing where it is stable. As in previous rounds, the primary driving force is increased volume, often coupled with higher prices and gains due to increased efficiency.

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

Published 26 April 2006 08:18