Regional network 2/2008
- Regional Network report
Interview period: March 2008
Demand, output and market outlook
Growth is moderate to solid in most industries. The rate of growth is approximately the same as in the previous round. It thus appears that economic growth will be somewhat slower in 2008 than was the case in 2007. In the past 3 months, growth has been strongest in the service industry and weakest in building and construction. All regions exhibit approximately the same developments.
The rate of growth in the export industry shows a falling trend in the past two rounds. Capacity utilisation is high in the processing industry with little scope for an increase in output. On the other hand, growth is reported in the fish-farming industry, while firms in other industries report a decline in the export market. Growth among suppliers to the petroleum industry is still solid and has edged up slightly since the previous round. High oil prices are contributing to a high level of exploration activity, resulting in extended platform lifetimes and thus higher demand for maintenance. Growth in the building and construction industry has stalled. Almost all regions report that new orders for residential construction have decreased, resulting in a falling level of activity. The level of commercial building activity is generally reported to be high and still rising slowly. Growth continues to be solid in retail trade and services, although it has edged down slightly in the past two rounds.
The outlook implies generally stable growth ahead. Among some export industries there is uncertainty about international developments in demand in the light of financial turbulence and prospects for lower growth. At the same time, many firms are facing a considerable challenge due to the exchange rate situation, which in the first instance pushes down prices and profitability. The level of activity in building and construction is expected to remain fairly stable, while residential construction is expected to decline. However, there is relatively high uncertainty as to what will happen after summer when order books are somewhat less well filled than they were last spring. Retail trade growth is expected to slow over the next six months. This is partly due to expectations of a moderate fall in sales of cars and building materials.
Capacity utilisation and supply of labour
Capacity utilisation is high and is now at about the same level as in the previous round. However, the capacity situation is less constrained than it was a year ago. As in previous rounds, capacity utilisation is highest and labour shortages most severe in the building and construction industry. Labour shortages are, however, somewhat less severe than in previous rounds. In retail trade and manufacturing, the capacity situation is approximately unchanged; just under 60% of firms are operating at or close to capacity limits.
Employment and the labour market
Employment has increased moderately in the past three months, but the pace of growth is slowing. All regions report growth in employment. As in previous rounds, employment growth is strongest in the service industry, but has also weakened here compared with the previous rounds. The building and construction industry reports zero growth in employment in this round.
Employment is expected to continue to increase ahead at about the same pace as in the previous three-month period. Expectations for growth, however, are somewhat lower than in the previous round, thus confirming the trend towards lower employment growth.
Costs, prices and profitability
Estimated wage growth is somewhat higher than in the previous round, and almost one percentage point higher than expectations for 2007 reported a year ago. Annual wage growth for 2008 is estimated at 5.6 per cent for all industries as a whole. Compared with the previous round, wage growth expectations are higher in retail trade, the local government and hospital sector and manufacturing. In general, wage expectations are more evenly distributed among sectors in this round.
Prices have increased at about the same rate as in the previous round. The rise in prices is still strong in corporate services and building and construction. The rise in prices in building and construction, however, has slowed somewhat since the previous round. The rise in prices has also decelerated somewhat in domestically oriented manufacturing, while it has edged up slightly in the export industry. Expectations tend towards a slower rise in prices over the next 12 months. Building and construction firms in particular are expecting a slower rise in prices. There are no expectations of an appreciable change in the rise in prices in the other industries.
Operating margins have increased for all industries except suppliers to the petroleum industry. The increase is less than in the previous round for domestically oriented manufacturing, retail trade and suppliers to the petroleum industry. Manufacturing and retail trade report only a marginal improvement in profitability. Operating margin growth is solid in the service industry and building and construction.
Charts - regional network (pdf, 37 kB)