Main points

In this round, which was conducted in March-April 2003, a total of 223 contacts in the regional network were interviewed. The following main points are based on the regional reports:

• Output and demand in export-oriented manufacturing are still falling, but developments are not as negative as in the previous period.
• The export industry's subcontractors are still struggling, but the signals are somewhat less negative than in January-February.
• Moderate growth continues in the consumer goods industry and in retail trade. Developments are weaker for consumer durables than for consumer goods.
• Developments in the petroleum industry are mixed. The activity level in the areas of exploration and development of new fields is low and falling, while the operations and maintenance market is growing.
• The impact of weaker economic developments is spreading to the construction industry. There is evidence of a slight decline in output this year and the volume of new orders is reported to be low. Previous years' high investments in buildings (particularly commercial buildings) with subsequent overcapacity are amplifying this negative trend.
• Companies supplying services to the business sector are experiencing a period of contraction with a continuing decline in demand and output. For companies supplying services to households, growth in demand seems to have stagnated in the first quarter.
• The primary focus in most sectors and particularly in manufacturing is still on cost and workforce reductions. The exception is retail trade where employment remains stable.
• This round of interviews supports expectations of considerably lower wage growth in 2003 than in 2002. Increasing unemployment and weak market and profitability trends in a number of business sectors contribute to this. Many will not offer local pay increases, but the carry-over and centralised pay increases set a lower limit for this year's wage growth. In 2003, annual wage growth is expected to be 3.5 per cent in manufacturing, 4 per cent in the service sector and 4.5 per cent in the public sector.
• Norges Bank's 1.5 percentage point reduction in the interest rate since December has had a positive impact on financing costs for a number of sectors, but so far has had little effect on the business sector's desire to invest. Many contacts mention that interest rate reductions will have a general, positive effect on demand, but that for the present this effect is overshadowed by other factors, such as high electricity prices, increased unemployment and an uncertain global situation. The interest rate reductions have contributed to maintaining household credit growth.

Region South-West

• Deliveries 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 still experiencing pressure due to the krone exchange rate and wage growth in recent years. Niche export firms are holding up in the face of a high cost level and recording both growth and profits.
• The construction sector reports stable output in the first quarter, but a substantial decline in the second half of the year.
• Retail trade reports continued disappointing developments in the first quarter, apart from food chains, which are experiencing a rise in turnover.
• Operating margins are stable for all sectors apart from services, which report a reduction.
• Selling prices changed slightly during the period, within the interval -2 to +2%.
• Expected wage growth in 2003 in manufacturing, the services industry and the public sector is lower than in the previous round.
• The supply of qualified labour is improving steadily; a number of enterprises report that they are able to choose from a wider range of qualified job- seekers.
• The profitability of enterprises in a borrowing position and with substantial tied up capital is improving. Contractors also report increased profitability because capital is tied up in projects. The construction sector therefore hopes that the decline that is now under way and the predicted drying up of contracts in the second half of the year will be of shorter duration than previously anticipated.
• The decline in interest rates has not yet had an appreciable effect on investment and employment. The desire to invest is still subdued, and will only pick up when there is lasting confidence in "prudent" wage settlements.
• A decline in parts of the petroleum sector and a lower level of new orders in the business sector generally, point to higher unemployment in this region as the most probable outcome.
• Moderate wage settlements are generally considered more important to competitiveness than the interest rate or the exchange rate.

 Region South

• Enterprises are maintaining a wait-and-see attitude with regard to economic developments. They are preparing for a difficult period, are reducing costs and avoiding risk wherever possible.
• Export companies, subcontractors and companies supplying services to the business sector are noticing a sharp reduction in demand.
• Retail trade and the food industry are showing moderate growth in turnover. Structural changes are influencing the situation for individual companies but having a limited impact on the market as a whole. Sales of luxury goods declined sharply during the period.
• Capacity and demand are well balanced in the construction industry in the Agder counties, whereas demand in the counties of Telemark and Vestfold is still low.
• Both seasonal variations and the competition situation have resulted in lay- offs in the past three months. The number of lay-offs is expected to decline towards the end of the coming three month period. Otherwise, there is evidence of slight reductions as enterprises are not replacing employees that leave. We find reductions of this kind in both the private and public sector. High priority is being given to all efficiency-enhancing measures and to structural changes, including relocating production abroad.
• The sharp rise in labour costs in 2002 is expected to be sharply reduced in 2003.
• A large number of companies report that margins are very small.
• Apart from electricity prices, wages and the effect of the krone exchange rate, changes in costs and prices have been small.

 Region East

• The demand situation for the export industry shows signs of levelling off after an appreciable fall in the second half of 2002. There is considerable uncertainty as to whether a fundamental recovery is on the way.
• Domestic manufacturing that does not supply the export industry is experiencing a generally moderate growth in demand. However, manufacturing industry that produces goods for the construction market is experiencing a levelling off of demand after several years of solid growth.
• Slight reduction in activity in the construction sector. There has been a shift in activity from new buildings to refurbishing, and from the business to the public sector. Our contacts are still expecting a clear fall in the level of activity this year.
• Sales of completed dwellings outside the Oslo area have picked up slightly, and advance sales of dwellings on which construction has not yet started appear to have improved somewhat since the New Year. Businesses that are involved in the early stages of new housing projects report an increased volume of assignments.
• Retail trade is experiencing moderate growth in demand for consumer non- durables. Businesses providing services for households have observed a levelling off of demand following moderate growth in previous rounds.
• Demand for services for the business sector continues to fall, from 2002 and into 2003. Demand from the public sector for services is reported still to be a stabilising element.
• The level of private sector investment is expected to be lower in 2003 than in 2002. The purpose of planned investments is generally maintenance or rationalisation. The exception is retail trade, with plans for higher investments to increase capacity. Public sector investment is expected to increase somewhat in 2003.
• Most private sector activities continue to focus on staff reductions, but the cutbacks in the services sector carried out last year appear to have been more extensive than those planned for the future. Employment in retail trade and the public sector is increasing moderately.
• Our contacts report a satisfactory and growing supply of qualified labour.
• Annual wage growth is expected to be lower in 2003 than in 2002, but carry- over from 2002 and previously agreed increases for 2003 are reducing the decline, particularly in the public sector.
• When asked about the significance of the interest rate cuts since December, no contacts report that this directly influences their investment decisions. Some point out that the reduction will have a direct positive effect through lower financial expenses. Many contacts mention that interest rate reductions will have a general, positive effect on demand, but that for the present this effect is overshadowed by other factors, such as high electricity prices, increased unemployment and an uncertain global situation.

 Region North-West

• Activity and demand are falling in the building and particularly the construction sector. In the wake of the reorganisation of the Public Roads Administration, road infrastructure investment in the region during the first quarter is the lowest for several years. The Eiksund project (which will provide land-based communication for the island municipalities of Hareid, Herøy, Sande and Ulstein) as well as investment in the energy and petroleum sectors provide positive stimulus, but not enough to offset a generally declining market. Investment in the public sector does not provide adequate counter-cyclical impulses, and tight municipal finances may reduce investment.
• Developments in manufacturing output and demand are still weak, although not as weak as in the autumn. Unemployment in export-oriented manufacturing is rising. A number of companies have restructured in this and the previous period and have hit bottom, but large parts of manufacturing have started reducing the work force now and will continue to do so ahead in 2003. Due to the long time horizon from contract to building start, it is clear that unemployment in the shipbuilding industry will continue to rise this year and next.
• Companies supplying services to the business sector are feeling the effects of a continued decline in demand. The hotel and restaurant sector has had an unfavourable first quarter and prices are being squeezed.
• Growth on retail trade slowed last summer/autumn. Growth in turnover so far this year has been positive, but lower than the average for 2002 (which was a strong year). There are considerably fewer customers, especially from the younger generation, in the furniture shops. The electricity bill which is expected at end-April will have a negative effect on retail trade.
• The 1.5 per cent interest rate reduction since December has had a stabilising effect on household behaviour in relation to borrowing, but has had less effect the business sector's investment decisions where declining demand is overshadowing. This has had a positive effect on financing costs for a number of companies, and many expect that this will gradually have a positive effect on demand for consumer durables.

 Region North

• The negative trend in demand and output in export-oriented manufacturing moderated somewhat in the most recent period compared with the data gathered in the January-February round. The exception is the fishing industry, which continues to report a negative trend in demand and output due to increased competition in export markets.
• Manufacturing supplying goods to the domestic market also reports an improvement compared with the previous round, with a levelling-off of the fall in demand and output during the period.
• The contacts continue to report weak growth in retail trade. Growth is not expected in the months ahead. The construction sector reports more modest demand, while the service sector reports generally unchanged demand.
• Investment is still being restrained in the private sector, while investment in the public sector is increasing. Companies report the need to utilise existing capacity rather than invest in new capacity.
• Manufacturing reports a decline in selling prices, while the other companies report that selling prices are generally unchanged. The increase in prices for factor inputs and lower selling prices are being offset by the effects of interest rate reductions and changes in the krone exchange rate. Export-oriented manufacturing and manufacturing supplying goods to the domestic market report that operating margins continue to decline, while construction, retail trade and the service sector report that operating margins are unchanged.
• Although the contacts report fewer layoffs and reductions in the workforce in this round, it is clear that companies and municipalities are still working on efficiency-enhancing initiatives which will probably include workforce reductions.

 Region Central Norway

• Export-oriented manufacturing output continues to fall. Some domestic-based manufacturing is expanding.
• The rate of growth in retail trade is lower than last autumn.
• The business sector's demand for various services has not increased in the last six months, probably because of the generally heavy focus on enhancing efficiency and reducing costs. Many companies claim that high wage levels and strong wage growth in recent years have increased the speed of restructuring, increased the focus on enhancing efficiency and reducing costs as well as hampered expansion.
• There are only very small changes in employment in the public sector.
• The new university hospital which is being built in Trondheim has resulted in increased activity in the construction sector.
• The supply of qualified labour is better than it was six months ago and is considered to be better than "normal" in all industries except construction.
• In isolation, the interest rate reductions are expected to increase demand in most markets, which will reduce the impact of other negative impulses.

 Region Inland

• Developments in domestic manufacturing are approximately in step with domestic consumption. The construction industry is showing positive developments in some regions, but is experiencing a decline in turnover in other regions.
• As a whole, developments are stronger for companies supplying services to households than for companies supplying services to the business sector. This is primarily because developments are sluggish for business customers in the construction industry and in sectors exposed to international competition.
• In general, those companies/industries that increase their turnover also increase capacity utilisation. The opposite is the case for companies/industries that are experiencing decline.
• Employment is stable, but many companies, particularly in the public sector and in construction, want to reduce their workforce in response to higher costs, lower budget limits or as part of general, planned downsizing.
• Most companies report that the supply of qualified labour has not changed. Of those companies that report changes, all but two report that the supply has improved.
• Wage increases are expected to be considerably lower in 2003 than in 2002. Increases are highest in the public sector. There is a moderate increase in other costs.
• Price changes are modest in most industries. Companies and industries that are struggling with a decline in turnover must reduce their prices.
• Companies perceive the interest rate reductions as positive due to increased demand for consumer durables, expectations of increased activity in the construction industry and increased activity in the business sector and the labour market in general.