Summary

• Continued high growth in retail trade and the household service sector.
• Bottom perceived to have been reached/ passed both in manufacturing and the corporate service sector.
• Activity in the construction industry has also stabilised, number of new orders edging up.
• Substantial uncertainty about the strength and duration of the upturn.
• Few enterprises in the corporate service sector have so far reported an increase in turnover, but some improvement in profitability due to cost cuts.
• The business sector in general reports that profitability has improved.
• The focus in the business sector appears to have shifted to some extent from cost cutting to strategies for increasing income.
• Both the public and the private sector appear somewhat more positive with respect to investment plans, but are still not signalling any substantial growth in investment over the next year.
• Rationalisation investment still predominant in manufacturing.
• Decline in employment slows, but few report plans to increase employment in either the public or the private sector
• Supply of qualified labour still high and edging up in all sectors.
• Wage growth in 2003 projected at (3.5)% in the private sector and (4.5)% in the public sector.

Focus report - effects on enterprises of interest rate reduction of 4.5 percentage points

• Positive financial expenses in most firms, cost level thereby lowered by interest rate reduction.
• Little evidence of investment plans being changed or moved forward as a result of the interest rate changes. Reduction in required rate of return experienced by large manufacturing firms, however, as a result of lower domestic and international interest rates.
• Turnover in housing market has increased, and housing construction expected to increase to meet higher demand. Little effect on commercial property market.
• Lower interest rates and increased household disposable income have boosted demand for firms providing goods and services to households.
• Lower interest rates and weaker krone exchange rate have strengthened export enterprises and thereby indirectly strengthened regions where the export industry is important.

Region South-West

• The general impression from the interviews is that the downturn reached its trough in early summer 2003.
• An improvement is already evident in some sectors, particularly retail trade (groceries, white goods and electronic goods).
• In general, the business sector is showing nascent, cautious optimism. Enterprises are, however, holding back investments and recruitment due to uncertainty and a substantial aversion to risk. Income is to be increased before investments are made to expand capacity.
• The construction sector, which expected a lean second half of the year, is now far more optimistic. DIY-shops have already felt the impact of the increase in home refurbishing. The decline in housing construction also seems to have come to a halt.
• Output is increasing in the export industry, and foreign owners of well-established companies are choosing to invest in Norway rather than other countries. We take this as an indication that the assessment of Norway as an industrial country is more positive now than it was in winter/spring.
• Most enterprises report stable employment following extensive measures to rationalise and restructure organisations and firms. The petroleum industry is still downsizing, while the number employed in retail trade is increasing.
• The trend in the petroleum and subcontracting sectors is stable or slightly declining, and this trend is expected to continue in 2004. Investment is likely to increase, but the share of domestic investment will probably be reduced, partly because of intensified foreign competition and partly because of the nature of the investments. The industry is expecting expansion in the Barents Sea area and changes in the tax regime. The Norwegian tax regime is favourable (relative to other countries) when oil prices are low, but unfavourable when oil prices are high.
• All industries still report a labour market overflowing with well-qualified labour. The supply of labour is particularly plentiful for larger undertakings because these employers are perceived as offering less insecure employment in the current labour market.
• Operating margins, declining in all sectors this spring, are now showing a slightly upward tendency.
• The decline in interest rates is having a positive impact on capital-intensive enterprises and sectors, but has so far not affected the level of investment. Investment programmes are, however, increasingly being included on the agenda.

 Region South

• Overall, demand and output have remained fairly stable from the second to the third quarter. The strongest demand impulse comes from the domestic private sector. This applies to manufacturing, services and retail trade. Corporate travel increased in the third quarter, and there is cautious optimism among enterprises in the domestic market with regard to developments in the next quarter.
• Some enterprises in the construction industry, suppliers to the petroleum industry and the export sector report new important projects that have recently been launched. Parts of the export industry, however, are still experiencing problems related to declining demand in international markets and high cost levels in Norway. At the same time, competitors from low-cost countries are reducing their prices substantially in order to maintain volume in a weak market.
• Most enterprises have adapted their workforce to a low level of activity. The capacity of personnel has therefore been fully utilised with few possibilities of increasing turnover without increasing the workforce. Capacity utilisation with regard to machinery and installations is, however, low among the enterprises contacted in this round.
• The level of investment is somewhat lower than normal. Very few enterprises are planning to make investments beyond necessary renewals and quality improvement. Only a few enterprises are planning or are in the process of investing in order to expand capacity. Demand for capital in the business sector is still low.
• With the exception of the public sector, pay increases are reported to be low.
• The decline in employment and low pay increases have reducing operating costs. For retail trade and service industries, results have been stable. The export industry is struggling with low prices and low capacity utilisation, resulting in falling operating profits. Operating results in domestic industries have shown a slight improvement.
• So far, the interest rate reductions have not had a noticeable effect on investment. Enterprises supplying consumer goods report an increase in sales because people have more money to spend. Export firms are benefiting from the depreciation of the krone, but prices for domestically produced goods and services are still too high to be competitive.

 Region East

• There is solid growth in retail trade and the household service sector. Household demand currently appears to be the most important driving force in the Norwegian economy.
• The bottom is perceived to have been reached/ passed for both manufacturing and corporate services, but there is substantial uncertainty as to the strength and duration of the upturn.
• Only a few enterprises supplying services to the business sector have so far reported an increase in turnover, although profitability has improved as a result of a reduction in costs.
• The focus appears to have shifted to some extent from cost cutting to strategies for increasing income.
• Activity in the commercial property sector continues to decline. Sales of new houses have picked up, and prices for resale homes are rising. These developments have led to an improvement in the order situation in housing construction. Activity is continuing to increase in the construction industry.
• With the exception of manufacturing, the decline in employment appears to be levelling off. However, few have reported plans to increase employment in the period ahead, whether in the public or private sector.
• Both the public and the private sectors appear somewhat more positive with respect to investment plans, but are still not signalling any substantial growth in investment over the next year.
• Interest rate reductions have increased profitability in manufacturing and the private service sector. In some manufacturing companies, the required rate of return has been lowered as a result of interest rate reductions.

 Region North-West

• The level of activity in the region is low, but signals from the business sector indicate that the bottom has been reached, and there are signs of cautious optimism. There is greater optimism in relation to improvements in operating parameters and positive developments in domestic demand than to developments in export markets. Labour force reductions and the associated rise in unemployment are curbing developments in some areas where manufacturing is an influential component.
• The export industry is to a varying extent beginning to feel the positive effects of the weaker krone, although developments in a number of markets, particularly in Europe, are still sluggish. New orders are beginning to come in in the shipbuilding industry, although orders are still generally few and far between. The number of enquiries is increasing, but price levels in the USD-based shipbuilding industry are still low, and no substantial upswing in the markets is expected for 6-12 months. After the fish farming industry bottomed out this summer, indications of positive developments in salmon prices and volume in the European market that were evident in the previous period have continued.
• Domestic manufacturing is showing signs of positive developments, especially manufacturing sectors related to domestic consumption, although the furniture industry cannot expect to return to its heyday and must adjust to a situation where competition from imports is intensifying. Subcontractors in the export industry are still dealing with a more difficult market, partly because some services in manufacturing are no longer being outsourced, putting pressure on subcontractors in difficult times, and partly because of a drop in demand as a result of outsourcing to low-cost countries, which has been ongoing for some time. Some suppliers are seeking new markets.
• There is still a strong focus on cost cutting/improvements in productivity and this means it will take time for employment to rise again. In the long run, this will improve competitiveness in terms of costs when the markets pick up again.
• Strong competitive pressures are keeping prices down and it appears that annual wage growth in internationally exposed industries and industries serving the domestic market will be low, while it is higher in the public sector.
• It takes time for the drop in interest rates to translate into higher investment in the business sector. Many have adopted a wait-and-see attitude to investment, but with the improved operating parameters, developments may quickly move in a positive direction when there are clearer signs of an upturn in some sectors. Manufacturing will probably await developments a little longer. Banks are highly risk averse vis-a-vis the business sector. There is still excess capacity in the commercial property sector. The public sector is maintaining some demand, and the low interest rate will gradually result in higher investment in this sector. We are also receiving reports that housing construction is edging up again, although the difficulties facing this industry have had an impact on some parts of the region, curbing developments in these areas. The threat of unemployment is also restraining turnover and prices in the housing market, although sales of refurbishing articles are rising. Households increase their demand for durable consumer goods such as furniture as a result of the lower interest rate.

 Region North

• Manufacturing industries for the domestic market and export market report that the decline in demand has come to a halt.
• 2003 is generally described as a difficult year, but there are now reports of optimism with regard to the period ahead. The corporate service sector reports positive developments over the last three months and expectations of continued growth. The household service sector reports stable demand.
• Retail trade continues to expand, and no major changes in demand are expected. The construction industry is experiencing declining demand, but optimism is being fuelled by plans to launch a number of building projects in the region.
• In general, interest in investment in new buildings is low in the private sector.
• Continued decline in employment in manufacturing and the construction industry, while other industries see a potential for growth in employment in the period ahead. In the public sector, focus on increasing efficiency by restructuring.
• Prices for goods manufactured for the domestic market have fallen somewhat. In other industries, little has changed since the previous period, with declining prices in retail trade, stable prices in private service industries. The contacts in zone 4, however, have reserved judgment pending the increase in employers' social security contributions at the beginning of 2004, which will result in a rise in prices.
• The interest rate reductions are reported to be having substantial positive effects for many enterprises, in terms of profits and turnover.

 Region Central Norway

• Manufacturing output has increased slightly in the last quarter.
• Continued growth in retail trade, now at well above 3%.
• Continued sluggish growth in construction industry. Increased activity in rural districts has reduced previous differences between urban and rural areas.
• Competition has intensified in most markets. This is partly a result of a rise in imports in some industries, and increased capacity in retail trade.
• Lower interest rates have contributed to more positive expectations concerning future developments. Few agents believe there has been any real impact yet, but many expect effects to appear in the near future.
• Our overall evaluation is that the economy is growing slowly, largely as a result of growth in retail sales and in the household service sector. Growth now seems to be strong enough to maintain a constant level of employment.
• A rise in new orders in manufacturing and the construction industry is generating expectations that growth will continue.

 Region Inland

• Slight increase in volume in moderately expanding markets for manufacturing industry supplying goods for the domestic market. Some industries are struggling, for example the manufacturing sector for building products.
• Most export industries have an optimistic view of the situation following the depreciation of the krone. Changes in employment are relatively small. Some enterprises are still struggling with the after-effects of the strong krone in 2002.
• Most of the firms interviewed in the construction industry have experienced a decline in demand and volume since the spring. Wide variations between different areas, activity in the region as a whole being sustained by the development of the Norwegian military base in Sør-Østerdal.
• Parts of service sector are experiencing higher demand both from the business sector and from households.
• Manufacturing employment is falling somewhat, even though there are a number of enterprises among those interviewed that have expanded in terms of volume. Reasons include weak cyclical developments in Europe, a weak domestic building market and the strong krone in 2002, combined with continued rationalisation and cost-cutting in most enterprises.
• Pay increases for 2003 will be lower than in 2002 for all sectors. Increases are highest in the public sector. Other costs are still showing a moderate increase, with a few exceptions.
• Changes in prices are very moderate in most sectors. Enterprises and industries struggling with a decline in turnover must lower their prices. Price levels are falling in most of the manufacturing sector.
• The supply of labour seems to be increasing, particularly in manufacturing.
• Companies perceive the interest rate reductions as positive due to increasing 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. Relatively few enterprises believe, however, that the interest rate reductions have so far boosted demand for their goods and services.
• What effect lower interest rates will have in the short term depends on enterprises' financial position. Costs will be reduced for most enterprises as a result of lower interest rates. There has been little effect on investment, one or two enterprises report that optimal (commodity) stock levels have now increased.