Main points

In the most recent round of talks, conducted in the period January - February 2003, a total of 229 contacts in the regional network were interviewed. The following main points are based on the regional reports:

• Export industries report falling demand. The fall is sharper than noted in the previous report. Companies describe a situation where competitiveness has deteriorated and activity is decreasing as a result of high wage growth and a strong krone exchange rate.
• The problems experienced by export industries are spreading to companies that supply goods to the domestic market. They are now also witnessing a fall in demand.
• In the offshore-related sector, the number of contracts has decreased with low activity in exploration and the development of new fields. The development of the Snøhvit field, however, is making a positive contribution. Compared with the previous report, developments are now considered to be moving on a downward path.
• For manufacturing, retail trade and services to households, demand appears to be showing continued moderate growth.
• In the construction industry, demand has remained unchanged during this period. Companies are, however, expecting 2003 to be characterised by falling demand.
• Redundancies and the use of lay-offs as an instrument both in the public sector and manufacturing have been reported in this period.
• As in previous periods, the public and private sectors again report that wage growth in 2002 was very high, with negative consequences for competitiveness. Both in the private and public sector annual wage growth is expected to be lower this year.
• Electricity prices are of relatively minor importance to companies. Most have long-term price agreements. The exchange rate and wage growth continue to be the factors regarded as having the most negative impact on competitiveness.

Region South-West

• Previous weak growth in manufacturing output for the domestic market appears to have come to a halt and export industries are struggling with both output and prices.
• Supplies to the petroleum industry are falling as a result of a reduction in exploration activity, few new projects and a larger share of foreign deliveries at the expense of Norwegian suppliers.
• Internationally exposed industries are under increasing pressure as a result of the krone exchange rate and wage growth in recent years. A number of export enterprises also report uncertainty due to the international situation
.
• The construction industry is exhibiting a moderate decline due to weaker demand for commercial premises.
• Retail trade reports disappointing Christmas and January sales.
• The krone exchange rate and wage growth are squeezing profit margins in manufacturing.
• In the previous round, we reported a moderate rise in prices except in export industries, which are experiencing a decline measured in NOK. It now appears that the business sector in general is finding it difficult to pass on the 2002 wage increase to prices.
• Lower annual wage growth is expected in both the private and public sector this year.
• The supply of qualified labour continues to improve, and a number of companies report that they are able to choose from a wider range of highly-qualified job- seekers.
• Higher electricity prices have little direct impact on the business sector. Many enterprises are enjoying the benefits of long-term fixed price agreements. Renewal of such agreements in January will only add 2-3 øre to costs. Retail trade, on the other hand, is affected indirectly and it has been claimed that the disappointing Christmas sales could be related to the rise in electricity prices and the strong media focus this issue has received.
• For export industries the effects of the krone exchange rate are at least as severe as in the previous round. Combined with the decline in parts of the petroleum sector and lower margins in the business sector in general, this may result in higher unemployment in this region.

 Region South

• Enterprises have adopted a wait-and-see attitude. They are preparing for a difficult period and reducing costs wherever possible.
• Export enterprises, subcontractors and service enterprises are noticing a sharp reduction in demand.
• Sales are stable in the primary industries, the grocery trade and the food industry. Structural changes are influencing the situation for individual enterprises but having a limited impact on the market as a whole.
• Capacity and demand are well balanced in the construction industry in the Vest-Agder and Øst-Agder counties, while there is a tendency towards low demand in Telemark and Vestfold.
• Both seasonal variations and the competition situation have resulted in lay- offs in the past 3 months. A reduction in lay-offs is expected towards the end of the coming 3 months. Employment is otherwise relatively stable, although there is a tendency for enterprises to cut back by not replacing employees that leave. This kind of cutback occurs in both the private and public sector.
• Strong growth in labour costs is a problem for all categories of enterprise.
• The strong krone exchange rate has eliminated profits for enterprises exposed to international competition.
• A few enterprises have experienced a sharp rise in costs due to high electricity prices. Many have hedged against this rise by securing long-term contracts.
• Apart from electricity prices, wages and the effect of the krone exchange rate, changes in costs and prices have been small.

 Region East

• Developments in demand in the export industries, including suppliers, are more negative than they were last autumn, partly as a result of a loss of market shares and partly as a result of deteriorating market conditions.
• The consumer goods industry seems to be holding up.
• Activity in the construction industry remained fairly high in the last half of 2002. New orders fell sharply, however, in the fourth quarter.
• In parts of the retail trade sector, sales are increasing at a moderate to brisk pace. Demand for some consumer durables, however, seems to have faltered.
• Demand for services in the business sector is still falling. Most services have experienced a gradual deterioration in the course of 2002. Household demand for services is showing moderate growth.
• Capacity utilisation is lower than normal for all sectors except retail trade, and investment plans have been revised downwards in all sectors since the previous report.
• Most enterprises in manufacturing and services for the business sector report that they have completed or planned workforce reductions.
• The picture is somewhat brighter for retail trade and services to households, where there has been a moderate rise in employment during the last half of 2002.
• In the municipal and health sectors, budgets are perceived as somewhat less flexible than previously, which is reflected in plans to reduce employment in the period ahead.
• Almost all contacts report an improvement in the supply of qualified labour in the course of the past year. A majority in manufacturing and services to the business sector report that for most occupations it is no longer difficult to obtain qualified labour.
• Annual wage growth is expected to be somewhat lower in 2003 than in 2002 in all sectors.
• A moderate to subdued rise in prices for goods and services to Norwegian households is expected. A fairly sharp price decline for export industries and services to the business sector is also expected.

 Region North-West

• Unemployment is moving up in export industries and in enterprises supplying goods and services, which are now experiencing serious problems. Domestic market industries are feeling the impact of increasing competition for imports and reduced demand.
• Manufacturing is moving in various ways into a strategic position, relocating all or parts of production abroad, and the strong krone exchange rate is amplifying and accelerating a process that would otherwise have taken longer.
• Service segments that are the first to feel the impact in a business cycle, such as goods transport, architects and advertising agencies are now in a contractionary phase with falling turnover and demand.
• There is no buying spree in retail trade.
• Competition for imports in increasing - the appreciation of the krone is beginning to feed through to import prices.
• Most of the contacts expect the wage settlement to be moderate this year.

 Region North

• Both the private and public sector report that the latest wage settlements were again very costly in this period.
• Growth has continued in retail trade. These developments are expected to continue in the coming months.
• Investment in the private sector is being restrained, while investment in the public sector is increasing.
• There has been some growth in the construction industry in this period. This activity seems to have been fuelled by higher public sector demand.
• Enterprises report lower demand and falling profitability - the same trend is evident in most industries except retail trade and parts of the construction industry. The strong krone combined with a costly wage settlement is contributing to reducing competitiveness in export industries. This has also resulted in a substantial reduction in demand and sales for enterprises supplying goods and services to these industries.
• There have been workforce reductions in both the public and private sectors and in manufacturing in this period. More companies than last autumn have reported plans for reductions in the workforce and expected layoffs in the coming period.
• In the context of the changes that are taking place in the labour market, the contacts report that the supply of qualified labour has generally improved. However, in rural areas it continues to be difficult to obtain qualified labour within some occupational groups or particular fields of expertise.

 Region Central Norway

• Manufacturing output continues to fall, but enterprises have adopted a wait-and-see attitude and expect the situation to improve in the near future.
• A large number of the contacts experienced a shift from increasing to falling demand during the first half of 2002, except in sales to households. In this sense, this round has confirmed the impression from the two rounds in autumn 2002. The overall experience of these contacts is that demand has remained at the same low level without any substantial change throughout the last quarter of 2002.
• There is widespread confidence, particularly within the service sector, that the outlook for 2003 is more promising compared with autumn 2002. There are already signs of an increase in demand. Combined with lower pessimism in manufacturing and no reduction in activity in the construction industry, this indicates that the prospects for the future have improved since autumn 2002.
• Municipalities are reducing employment.
• The supply of qualified labour has continued to increase.
• None of the contacts is expecting higher wage growth in 2003 than in 2002; most expect wage growth to be markedly lower.
• Higher electricity prices seem to be exerting downward pressure on profitability in some enterprises and reducing retail sales.

 Region Inland

• The level of activity is relatively stable.
• Exceptions are manufacturing segments that compete for exports or with imports. A number of these enterprises are struggling in the face of negative developments.
• Another exception is the construction industry, which is showing positive developments in some areas.
• Employment is stable, but many enterprises, particularly in manufacturing, want to reduce the number of employees to counter higher costs or as part of general downsizing plans.
• The level of investment is fairly stable throughout the region. A number of manufacturing enterprises want to automate production in order to reduce labour costs.
• The supply of labour will increase due to manufacturing redundancies, lower activity in the construction industry and higher unemployment in general.
• Many enterprises are concerned about high electricity costs. A large number are more concerned about the effect of electricity prices on markets and demand than as a cost element.