Norges Bank

Regional network report

Regional network 5/2007

Series:
Regional network report
Number:
5/2007

Interview period: October and November 2007

Summary

Demand, output and market outlook
Growth in the business sector remains solid but is weaker now than three months ago. Manufacturing, retail trade and the service sector report solid growth. Building and construction report moderate growth. Suppliers to the petroleum industry and the export industry report somewhat stronger growth than in the previous round of interviews, whereas other industries report somewhat weaker growth.

Growth is expected to remain solid in all industries during the next six months, although the rate of growth is clearly slowing. Corporate services, retail trade, suppliers to the petroleum industry and the export industry are expecting the highest growth. Building and construction are expecting no growth as limited idle capacity over time has resulted in high prices. At the same time, the interest rate has risen and house sales in a number of locations have slowed somewhat.

In the export industry, currency hedging and purchases in the contract currency have thus far reduced the effects of a weakened USD. The global market is growing and this ensures solid demand and output in many sectors. Suppliers to the petroleum industry continue to experience growth. The level of activity fluctuates somewhat with the start-up and completion of large projects, but in general the industry reports full capacity utilisation. The slowdown in residential construction is apparent now and growth in commercial building is not expected to compensate fully for this decline.

Capacity utilisation and supply of labour
Capacity utilisation in the Norwegian business sector is high. Two of three contacts will have some or considerable problems in accommodating growth in demand. This represents a slight increase compared with August but is approximately the same number of contacts as at this time last year. Just over half of the contacts report that the supply of labour will restrict any increase in production. The share has increased only slightly, and in manufacturing in particular an increasing number of contacts report physical factors as the most important constraint.  

Employment and the labour market
Employment growth continues in all industries and is rising markedly in manufacturing and the service sector. On the whole, our contacts expect somewhat weaker growth in employment in the next three months. The changes are small, however, and may be ascribed to the fact that some believe that recruitment is impossible in today’s market and to the fact that some businesses are not interested in further expansion.

Costs, prices and profitability
All industries report relatively high wage growth in 2007. Estimated annual wage growth for 2007 is currently 5½%, as a weighted average. This is approximately in line with the estimates in the previous round. Compared with estimates at the same time last year, wage growth is expected to be one percentage point higher this year. Wage growth is strongest in building and construction.

Our contacts report a solid rise in selling prices. The rise in prices is accelerating in all industries and is at the highest level recorded by the regional network. The rise in prices is definitely strongest in building and construction and weakest in retail trade. The number of contacts expecting a lower rise in prices in the next year (30%) is substantially larger than the number expecting a higher rise in prices (18%). A majority of contacts in manufacturing and building and construction expect a lower rise in prices in the period ahead, whereas a majority of contacts in the service sector expect a stronger rise in prices during the next 12 months.

Operating margins are increasing in all industries. On the whole, the rise in operating margins is at the same level as during the previous round of interviews. Suppliers to the petroleum industry and the service sector report the most substantial increase in margins. Developments are weakest in the export industry. The strong Norwegian krone is one reason for the decline.

Charts - regional network (pdf, 40 kB) 

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

Published 12 December 2007 15:00
Published 12 December 2007 15:00