Norges Bank

Regional Network report

Regional network 4/2008

Regional Network report

Interview period: August 2008


Demand and output
The declining growth in output observed during the last two rounds continues.  Our contacts now report slightly moderate growth. This is the lowest growth measured by the network since autumn 2003. The most important reason for the reduced growth seems to be a reduction in private demand for housing, household furnishings and cars. This has a particularly strong impact on building and construction where our contacts for the first time are reporting layoffs.  We have also experienced that contacts have gone bankrupt during this round.  Our contacts have also reported a decline in retail trade for the first time in the history of the network. The export industry, oil related industry and corporate services all contributed to pushing up overall growth.

On the whole, zero growth in output is expected during the next six months. The decline in building and construction has thus far been related to a reduction in residential building. A further weakening is expected as ongoing projects are completed.  Our contacts also expect a continued decline in order backlogs for all areas of building and construction. The decline in retail trade is expected to continue. Domestic manufacturing also anticipates reduced output. Continued growth is expected in export and oil-related industries and corporate services. The growth rate in manufacturing is affected by capacity constraints.
Capacity utilisation and supply of labour
Capacity in the economy is less tight, especially with regard to the supply of labour. 48 per cent of the private companies in the network report that they would have some or considerable difficulty in accommodating expected or unexpected growth in demand, while 37 per cent of all contacts report that the supply of labour would limit output if demand increased. Correspondingly low figures have not been recorded since the summer of 2006. There are clear regional differences. Capacity utilisation is clearly tighter in the “oil regions” North West and South West where 78 per cent and 65 per cent of the contacts respectively report capacity problems. The most important reason for capacity problems is that suppliers to the petroleum industry have made a “clean sweep” of the labour market.  In several regions, including the “oil regions”, there are indications of labour market easing.

Employment and the labour market
Employment has increased moderately in the past three months, but the pace of growth is slowing. On the whole, zero growth is expected during the next three months. Employment growth is expected in corporate services, the export industry and among suppliers to the petroleum industry. The municipal sector is expecting reductions in employment due to cost cutting measures, while building and construction are expecting cutbacks as a result of further reductions in activity levels.

On the whole, investment is expected to decline in Norway during the next 12 months. With the exception of manufacturing, investment is falling in all industries. This development is due to the fact that enterprises to a large extent are approaching the final phase of major investment programmes, that industries facing decreased demand are reducing investments, that enterprises are increasing investments in foreign production capacity and that local government economy is generally tighter.

Costs, prices and profitability
Our contacts estimate average annual wage growth to be just under 6 per cent. This represents a marginal increase compared with the previous round, but an increase of about ½ percentage point compared with the same round last year. Wage growth varies from 5½ per cent in retail trade to 6½ per cent in manufacturing. The public sector expects wage growth to be 6 per cent.

Our contacts continue to report a considerable rise in the cost of factor inputs even though some commodity prices have now levelled off or fallen. Banks’ funding costs have risen sharply in relation to the key policy rate and this affects the availability of credit to Norwegian companies.

During this round, prices rose by 4.1 per cent. This increase is due to a large extent to increased labour and input costs. The high capacity utilisation in recent years limits companies’ possibilities of covering higher costs by boosting productivity. Suppliers to the grocery market report that because the large chains have so much market power they have had to cover some of the cost increases by reducing margins.

The rise in prices is expected to slow during the next 12 months. Of 253 companies, 100 currently expect a lower rise in prices, while only 51 companies expect a higher rise in prices. This is the lowest level measured since the network was established.

In general, margins are skrinking, although this is not the case among suppliers to the petroleum industry. The most important reason for the decline is that companies have not succeeded in increasing selling prices in pace with wage and input cost increases or compensated for the cost increases through improved productivity.

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 25 September 2008 14:00
Published 25 September 2008 14:00