All in all, the increase in labour costs is estimated at close to 5 per cent in 2000 and 4½ per cent in 2001. In isolation, the additional vacation days will contribute to a tighter labour market than previously projected. An increase in labour costs will, however, gradually lead to reduced capacity to pay and slower employment growth in the business sector. This will in isolation contribute to lower wage growth at a later stage. For 2002, wage growth is estimated at 4¼ per cent, which is somewhat lower than in the March Report.

Growth forecasts for our trading partners have been revised up further. The world economy has recovered surprisingly quickly from the slowdown following the Asian crisis and turbulence in financial markets in the autumn of 1998. Economic prospects for the euro area and Sweden have improved substantially. The rise in oil prices has contributed to higher price inflation.

The Norwegian economy is marked by a high level of activity and pressures in large parts of the labour market. Growth in private and public consumption remains buoyant. At the same time, employment is high and available resources are limited. Higher labour costs and the reduction in the effective supply of labour as a result of additional vacation days will have a dampening effect on production growth in 2001 and 2002. Somewhat higher interest rates than previously anticipated and the contraction in petroleum investment may curb demand growth. On balance, mainland production is now estimated to expand at a slightly slower pace than the increase in production capacity. Mainland GDP growth is estimated at 1¾ per cent in 2000 and 1½ per cent in both 2001 and 2002. The estimates for 2001 and 2002 have been revised downwards compared with the March Report. Unemployment seems to be stabilising around the current level.

The risk of a pronounced downturn over the next two years is limited. The risk of higher price and cost inflation has increased.