Summary

Demand, output and market outlook

Growth in demand and production is the same as in the previous round, as is the market outlook for the next six months, and future investment plans. This round is thus characterised by growth in all sectors and all regions. However, there are regional differences. Economic activity is highest in Region South-West and lowest in Northern Norway and Inland.

Growth is strongest in building and construction, corporate services and petroleum-related activities. Here we find characteristic regional differences. Generally speaking, growth along the coast from Southern to Central Norway is primarily petroleum-driven, while growth in Eastern Norway is primarily being driven by business-related services. Growth is primarily linked to financial, consulting and advisory businesses. Temporary staff agencies are also reporting solid performance.

In building and construction, activity is highest along the coast from South to North-West. Residential construction activity is still high and there is solid growth in the sectors construction and commercial and public building.

Both the export industry and domestically oriented industry report solid growth. Growth in domestically oriented industry is broadly based. Manufacturers of consumer durables such as furniture and boats, newspapers and media companies and suppliers to building and construction all report increased demand. The food industry reports a moderate increase in growth. The export industry also reports continued solid growth. The fish-farming industry is once again optimistic in the light of increasing demand for Norwegian salmon. The export-oriented technology industry is also experiencing strong growth, while signals from the processing industry are mixed.

Retail trade also reports a growth rate on a par with the previous round. There is solid growth in sales of leisure boats, building materials, electronics and furniture, while there appear to be considerable regional differences for clothing and footwear.

The rate of growth for household services is lower than for corporate services. However, there is solid growth in the private banking market, and hotels and restaurants are reporting higher activity than earlier.

The market outlook for the next six months points clearly towards growth remaining buoyant in all sectors, and especially among suppliers to the petroleum industry and corporate services. There is growing concern regarding the krone exchange rate in the export industry and domestically exposed industry. At the same time, companies appear to have better exchange rate management strategies today than 3-4 years ago.

Capacity utilisation and investment plans

53% of all companies report that they would have some or considerable difficulty in accommodating an increase in demand. This is an increase from 49% in the previous rounds this year, and higher than in autumn 2005. Four of 10 enterprises indicate that the labour supply is an obstacle to further growth. This is a marginal increase on the previous round. A year ago, the share was 24%, so our observations confirm the impression of an increasingly tight labour market.

The situation in building and construction is most precarious, with three out of four companies reporting that labour shortages are limiting turnover. Petroleum-related industry is also facing growing constraints, while retail trade and the public sector have the least difficulties associated with capacity utilisation and growth.

Future investment plans are also on a par with the previous round, i.e. all sectors have moderately increasing investment budgets at high levels. The local government and hospital sectors imply stronger investment growth than in the private sector.

Employment and labour market

Employment is on the way up in all sectors. Developments are similar to the previous round, with one exception: employment is now also increasing in retail trade. In the private sector, growth is strongest in Region South-West, as confirmed by the Directorate of Labour. Employment growth appears to be lowest in Region Inland.

Growth in the number employed is expected to continue at the same rate for the next three months. Building and construction expect somewhat stronger employment growth than the other sectors. This is in line with what we reported in the previous round.

Costs, prices and profitability

In the previous round, expected annual wage growth was between 3.5% and 4.5%. In the private sector, expected annual wage growth increased by 0.5 percentage point across the board in the last two months, and is now in the interval 4-5%. Services lie at the upper end of the range, while manufacturing and retail trade are at the lower end. Expectations in the public sector average 3.5%. Many contacts expect strong growth for certain groups where the result of local negotiations will be decisive.

Prices are increasing in all industries with the exception of retail trade. The rise in prices is strongest in the export industry, petroleum-related activities, building and construction and corporate services. Compared with observations in March, the rise in prices is now higher in exports and corporate services. Just over half of companies expect the same rise in prices in the next 12 months, while just over a quarter are expecting a higher rise in prices.

Profitability is improving in all sectors, again at the same pace as in the last round. The offshore industry has seen the highest gains, but the export industry, building and construction and service industries also have solid bottom lines. Profitability developments in domestically oriented industry and retail trade are more moderate.

Region South-West

• The cyclical upturn is continuing. Activity in the building and construction sector and among suppliers to the petroleum industry remains at a very high level, and in this round the pace of growth in the export industry, retail trade and services has picked up.
• All sectors are very optimistic about the market outlook for the next six months, particularly suppliers to the petroleum industry.
• Investment is expected to increase in manufacturing, building and construction and services, fuelled by market opportunities, solid earnings and solutions to capacity problems. The level of investment in retail trade is already high.
• With the exception of domestically oriented manufacturing and the public sector, employment is increasing. The labour market is considerably tighter than it was six months ago. Six of ten enterprises report that labour shortages are limiting their possibilities for expansion. The situation is tightest for building and construction and petroleum-related companies. The public sector is also having problems recruiting from certain categories of skilled labour.
• Employment is also expected to increase in the next three months, but some projects are being postponed owing to a shortage of labour.
• Expected annual wage growth for 2006 has increased since the previous round, and is now at 4-5%.
• Prices have risen in the past 12 months, particularly in the export and oil-related industries and in corporate services. Six of ten companies expect prices to continue rising at the same pace for the next 12 months, while every fourth company expects prices to rise at a faster pace.
• Profitability trends are highly positive in all business sectors. The export and petroleum-related industries report the most pronounced improvement.

Region South

• Domestically-oriented manufacturing reports solid growth, but a somewhat lower growth rate than in the previous round. Suppliers to the petroleum industry report strong growth in this round again. The favourable trend in building and construction reported in the previous round has continued. Retail trade and household services report solid growth, but at a somewhat slower pace than in the previous period. Growth in services for the business sector remains strong.
• The market outlook is positive for all industries. Retrail trade and corporate services expect solid growth in line with the previous round. However, growth expectations in manufacturing and building and construction are somewhat more subdued than in the previous period. This is partly because an increasing number of companies are producing at full capacity, and partly because of increasing competition from low-cost countries in some manufacturing sectors.
• Capacity utilisation in the business sector in Region South appears to be increasing gradually. 44% of our contacts now respond that they would have problems accommodating increased demand. The problems are largest in building and construction, followed by manufacturing. The supply of qualified labour is a steadily increasing problem, particularly in building and construction and suppliers to the petroleum industry. Otherwise, the supply of labour does not appear to be a major problem in Region South.
• Investment is gathering pace. The rate of investment in manufacturing is solid. The rate of investment in retail trade is moderate, while it is solid in other services. Solid growth is reported for investment in the local government and hospital sectors.
• Employment is now increasing both in the private sector and in the local government and hospital sectors. Growth is strongest in building and construction, where employment growth is solid. However, the supply of qualified labour may limit growth in this industry in the next quarter despite the fact that foreign labour is now being used to a greater extent than a few months ago. Employment growth is otherwise moderate in manufacturing, retail trade and other services. The local government and hospital sectors report moderate growth. In the local government sector, the need for labour is most pronounced in the health and care sector and in education.
• Expected wage growth for 2006 in the private sector is somewhat higher than expectations reported at the same time last year and annual wage growth reported at end-2005. Expected wage growth in the local government and hospital sectors is at the same level as reported previously, however. Annual wage growth is estimated at 5.0% in manufacturing, building and construction, while service industries expect 5.5%. Contacts in the local government and hospital sectors apply government framework and estimate annual wage growth at 3.5% in 2006.
• The export industry, building and construction and corporate services report a rise in selling prices over the past year. Price developments are reported to have been stable in manufacturing for the domestic market and household services. Retail prices have shown a slight decline over the past year. Next year, 72% of the respondents expect an unchanged rise in prices.
• The business sector in Region South is faring well. Improved profitability is being driven by increased volume in all industries and by higher selling prices in the export industry, building and construction and corporate services.

Region East

• Our contacts in Region East report that demand and output growth are still solid and that they expect growth to remain buoyant.
• Domestically oriented manufacturing reports solid growth in demand and output in the past few months, and growth is somewhat stronger than in the previous round. The growth rate is also solid in the export industry.
• Growth in building and construction is solid, but appears to be a little weaker than in the previous round. This is related to the fact that a number of building companies are producing at full capacity, hampering further growth. However, there appears to be some idle capacity in the construction sector.
• Growth in retail trade is moderate, as in the previous round. Harsh weather conditions this winter have reduced sales of clothing, footwear and building materials. At the same time, sales of furniture and sports equipment are showing solid growth. Solid growth is expected in the period ahead in retail trade as a whole.
• Growth in service industries is strong, particularly in financial, consulting and advisory services. Growth is expected to remain strong for the next 6 months.
• 37% of companies will have problems accommodating unexpected growth in demand. This is lower than in the previous round, possibly because a number of enterprises have invested to increase capacity. At the same time, more enterprises than previously report that the labour supply will be a constraint on growth in output/turnover in the event of a rise in demand. The problems are still largest in building and construction, but there are also more manufacturing enterprises with problems than in the previous round.
• Retail trade reports a moderate increase in investment. The local government and hospital sectors expect solid growth.
• In the last 3 months, employment has increased in all sectors except retail trade. There are plans ahead for an increase in building and construction, services and the local government sector.
• Annual wage growth is estimated in this round at about 4¼%. This is unchanged from the previous round, but growth varies widely across sectors.
• The rise in prices over the past 12 months is reported to be somewhat higher than in the previous round. At the same time, the share of enterprises expecting a higher rise in prices is smaller than in the previous round.

Region North-West

• Manufacturing growth in Region North-West is still buoyant. Domestically oriented manufacturing reports strong growth, while the export industry reports that growth remained solid in the last quarter. The growth rate for the next six months has been revised downwards to moderate growth overall for both domestically oriented manufacturing and the export industry. In this round, the export industry is represented largely by processing and exports of various types of fish products, and some segments of this industry, with the exception of salmon exports, are facing considerable uncertainty with respect to both volume growth and price movements in the next half year. Other parts of the export industry report somewhat stronger growth. Growth is levelling off here because of capacity problems, and not because of poorer market prospects. This applies in particular to the shipyard industry, where domestic order stocks have reached a level of over NOK 25 billion.
• Activity in building and construction, and in particular among suppliers to the petroleum industry, is still at a very high level. Suppliers to the petroleum industry report strong growth, while building and construction report solid growth. The strong pace of growth reported by suppliers to the petroleum industry appears set to continue in the next six months as well, while growth in building and construction will be a little more subdued.
• Growth in retail trade has been solid for the past three months, and moderate growth is expected during the next 6 months. The service sector reports solid growth overall in the past quarter. Services for the corporate sector have shown the strongest growth. In the next 6-month period, solid growth is expected in services across the board.
• Almost 75% of the enterprises surveyed respond that they would have had some or considerable problems in coping with a rise in demand. This applies especially to enterprises in services, building and construction and suppliers to the petroleum industry. Most sectors also report considerable problems in procuring qualified labour.
• All sectors report increased investment in the next 6 months. The strongest growth is expected among some suppliers to the petroleum industry, the local government sector and retail trade.
• The average estimated annual wage growth for 2006 is 3.5% for manufacturing, building and construction and retail trade. Wage growth of around 4.5% is expected in services. In the local government sector, wage growth of around 4% is expected, although budgets have incorporated somewhat lower wage growth.

Region North

• Growth in demand and output continues in Region North. The export industry reports solid growth, at the same pace as in the previous round. Growth is expected to remain solid during the next 6 months.
• Domestically oriented manufacturing reports solid growth. The growth rate is at the same level as in the previous round. It is expected to be higher in the latter half of the year.
• Building and construction report solid growth, at a somewhat higher rate than in the previous round. Growth is expected to remain solid for the next 6 months.
• Retail trade reports solid growth at the same pace as in the previous round. Solid growth is also expected in the period ahead.
• Corporate services report solid demand growth at the same level as in the previous round. The growth rate for household services is moderate and on a level with the previous round. Growth in services is also expected to be solid during the next 6 months.
• Manufacturing, retail trade and the local government and hospital sectors expect moderate growth in investment during the next 12 months. Service industries report zero investment growth.
• Employment growth has been moderate in all sectors in the past three months. The exceptions are the local government and hospital sectors, with unchanged employment. In the period ahead, solid employment growth is expected in building and construction and services, while moderate growth is expected in retail trade and employment in manufacturing and the local government and hospital sectors is expected to remain unchanged.
• There is a relatively ample supply of labour in both manufacturing and retail trade. There is a shortage of specialised engineers, project managers and skilled workers in building and construction. In services there is a shortage of engineers, qualified and experienced architects, motor mechanics and drivers licensed for heavy vehicles. In the local government and hospital sectors there is a limited supply of nurses and qualified engineers with technical expertise.
• In addition to wages, cost increases are dominated by the effects of higher prices for oil, electricity and raw materials for solar cell manufacturing and the fishing and fish farming industries. The effects are most pronounced in manufacturing and the transport sector.
• The export industry reports a marked rise in prices over the last 12 months in the export industry and household services. Prices in manufacturing for the domestic market and corporate services have risen moderately. Prices for building and construction and retail trade show an unchanged rise. Expectations of higher price rises are highest in services and domestically oriented manufacturing.
• Manufacturing and service industries report moderate growth in profitability as a result of increased demand and output. Growth in profitability in building and construction and retail trade remain unchanged.

Region Central Norway

• Growth in demand and output continues in Region North. The export industry reports solid growth, at the same pace as in the previous round. Growth is expected to remain solid during the next 6 months.
• Domestically oriented manufacturing reports solid growth. The growth rate is at the same level as in the previous round. It is expected to be higher in the latter half of the year.
• Building and construction report solid growth, at a somewhat higher rate than in the previous round. Growth is expected to remain solid for the next 6 months.
• Retail trade reports solid growth at the same pace as in the previous round. Solid growth is also expected in the period ahead.
• Corporate services report solid demand growth at the same level as in the previous round. The growth rate for household services is moderate and on a level with the previous round. Growth in services is also expected to be solid during the next 6 months.
• Manufacturing, retail trade and the local government and hospital sectors expect moderate growth in investment during the next 12 months. Service industries report zero investment growth.
• Employment growth has been moderate in all sectors in the past three months. The exceptions are the local government and hospital sectors, with unchanged employment. In the period ahead, solid employment growth is expected in building and construction and services, while moderate growth is expected in retail trade and employment in manufacturing and the local government and hospital sectors is expected to remain unchanged.
• There is a relatively ample supply of labour in both manufacturing and retail trade. There is a shortage of specialised engineers, project managers and skilled workers in building and construction. In services there is a shortage of engineers, qualified and experienced architects, motor mechanics and drivers licensed for heavy vehicles. In the local government and hospital sectors there is a limited supply of nurses and qualified engineers with technical expertise.
• In addition to wages, cost increases are dominated by the effects of higher prices for oil, electricity and raw materials for solar cell manufacturing and the fishing and fish farming industries. The effects are most pronounced in manufacturing and the transport sector.
• The export industry reports a marked rise in prices over the last 12 months in the export industry and household services. Prices in manufacturing for the domestic market and corporate services have risen moderately. Prices for building and construction and retail trade show an unchanged rise. Expectations of higher price rises are highest in services and domestically oriented manufacturing.
• Manufacturing and service industries report moderate growth in profitability as a result of increased demand and output. Growth in profitability in building and construction and retail trade remain unchanged.

Region Inland

• On the whole, there has been growth in demand in Region Inland during the period. In our view, the overall growth rate is approximately on a par with the rate in the last round.
• The export industry reports a slight rise in volume, whereas in the previous round it was stable. Growth in some service industries is somewhat stronger than in the previous round.
• The market outlook remains favourable for all industries in Region Inland. Expected growth in volume is highest for building, construction and services, but the outlook for manufacturing is also relatively favourable.
• In services, growth is expected in consulting activities, transport and temporary staff recruitment. In manufacturing, solid growth is expected in building-related manufacturing and some segments of the metal and metal products industry.
• Enterprises in Region Inland now appear to be operating closer to capacity than in the previous rounds. Almost half of the companies will have problems accommodating substantial growth in demand. The share is largest in the building and construction sector and services.
• The investment level is till rising somewhat in service industries and manufacturing. Investment growth in services has slowed somewhat. Investment in retail trade and the local government sector will decline somewhat over the next 12 months.
• Employment has been stable in all sectors for the past 3 months, with the exception of services and the local government sector, where there has been moderate growth.
• Employment is expected to grow at a moderate pace in services and to remain stable in manufacturing. Moderate growth appears likely in building and construction, while retail trade reports a cautious decline.
• In this round, approximately a fourth of the companies report that the labour supply is a production constraint. Capacity has become somewhat tighter. As earlier, the majority of companies that experience labour shortages as a constraint are in building, construction and services.
• Estimated annual wage growth in this round is 0.5 - 1 percentage point higher than in the corresponding round in 2005. Expected wage growth has also risen in all industries since the first and second rounds this year.
• Among other factor inputs, energy and commodities, particularly metals, show the sharpest rise in prices.
• The rise in selling prices is approximately on a par with the previous round in all industries. The exception is the export industry, where the rise has been somewhat stronger.
• As in the previous round, the majority now expect a higher rather than a lower rise in prices in the next 12 months. The share expecting a higher rise in prices is largest in services.
• Profitability in the last 3 months has improved somewhat in manufacturing and services, but at the same time has weakened somewhat in building and construction.