Chapter 3 Demand and production

(1)

Hovedstyret desember 2002

Chapter 3 Demand and production

3.1 Goods consumption index

1995=100. Seasonally adjusted volume

112 114 116 118 120 122 124

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 112 114 116 118 120 122 124 2000 2001 2002

(2)

3.2 Retail sales index

Seasonally adjusted volume

114 116 118 120 122 124

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 114 116 118 120 122 124 2000 2001 2002

Source: Statistics Norway

Hovedstyret desember 2002 0 5 10 15 20 25 30 35 40 45 1998 1999 2000 2001 2002 0 5 10 15 20 25 30 35 40 45

NEF/ EEF/ ECON OBOS

Source: Norwegian Association of Real Estate Agents (NEF), Norwegian Association of Real Estate Agent Enterprises (EFF), Finn.no, ECON and OBOS

3.3 House prices

(3)

3.4 Price index for resale homes

Owner-occupied. 1996 Q1 = 100

100 125 150 175 200 225 250 1996 1997 1998 1999 2000 2001 2002 100 125 150 175 200 225 250 Oslo and Bærum

Rest of Norway Stavanger, Bergen og Trondheim

Total resale homes

Rest of Akershus -8 -4 0 4 8 12 16 92 93 94 95 96 97 98 99 00 01 02 -8 -4 0 4 8 12 16 Year-on-year growth, whole of Norway

3.5 Real home prices

Index. 1980 = 100

0 50 100 150 200 80 82 84 86 88 90 92 94 96 98 00 0 50 100 150 200 Source: BIS US Germany Sweden UK Norway

(4)

Hovedstyret desember 2002 -30 -15 0 15 30 45 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 -30 -15 0 15 30 45 Unadjusted

Source: Norsk Gallup Institutt AS

Trend

3.6 Consumer confidence indicator

Unadjusted and trend (levels)

Hovedstyret desember 2002 -35 -20 -5 10 25 1998 1999 2000 2001 2002 -35 -20 -5 10 25 Total

Source: Norsk Gallup Institutt AS

3.7 Consumer confidence indicator

Figures are not seasonally adjusted

Own economy

(5)

Hovedstyret desember 2002 0 500 1000 1500 2000 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 0 500 1000 1500 2000

Sources: Opak Byggebransjens Kompetansesenter, Dagens Næringsliv

Ordinary standard, central

High standard, west

3.8 Property index

Prices for rental of office premises in the Oslo area.

Annual price in NOK per square metre

3.9 Number of bankruptcy orders made

Change on same month previous year

-100 -50 0 50 100 150 200

Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02

(6)

3.10 Sentiment indicator for manufacturing industry

1)

Seasonally adjusted diffusion index

2)

-6 -3 0 3 6 9 12 15 1995 1996 1997 1998 1999 2000 2001 2002 -6 -3 0 3 6 9 12 15

2)_{Values lower than zero indicate that the majority of industrial}

leaders expect a weaker outlook in the next quarter

1) _{The sentiment indicator for manufacturing is an average of expected changes in production, actual}

unfilled orders and stocks of own products from Statistics Norway’s businesss tendency survey

Source: Statistics Norway and Norges Bank

3.11 New orders, manufacturing

Value indices. 1995=100

50 100 150 200 250 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 50 100 150 200 250 Domestic Export

(7)

3.12 New orders, manufacturing

Value indices. 1995=100

50 100 150 200 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 50 100 150 200 Domestic Export

3.13 Traditional merchandise exports and imports

Seasonally adjusted. In millions of NOK

12 14 16 18 20 22 24 26

feb 00 aug 00 feb 01 aug 01 feb 02 aug 02

12 14 16 18 20 22 24 26 Imports Exports

(8)

3.14 Household debt burden

1)

100 110 120 130 140 150 160 170 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 100 110 120 130 140 150 160 170

Source: Norges Bank

Baseline scenario

Alternative with 11 per cent rise

in debt

1)_{Household loan debt as percentage}

3.15 Household interest burden

1)

_{and lending rate}

0 3 6 9 12 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 0 3 6 9 12

Source: Norges Bank

Interest burden

Lending rate after tax

1)_{After tax interest expenses as a percentage of disposable oncome and interest expenses}

Baseline scenario

Alternative with 11 per cent rise

(9)

3.16 Debt and interest burden in non-financial

enterprises excluding petroleum and shipping

Per cent

0 10 20 30 40 50 60 70 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 0 100 200 300 400 500 600 700 Interest burden2) (left-hand scale) Debt burden1) (right-hand scale)

1)_{Debt as a percentage of cash surplus excl interest expenses} 2)_{Interest expenses as a percentage of cash surplus}

Cash surplus = Value added - labour costs + capital income

Sources: Statistics Norway and Norges Bank

3.17 Companies’ return

1)

_{and equity ratio}

Per cent

0 20 40 60 80 100 89 90 91 92 93 94 95 96 97 98 99 00 01 0 5 10 15 20 25

Source: Norges Bank

Interest on debt

Return on equity

Return on total assets

Equity ratio (left-hand scale)

1)_{Total pre-tax return as a percentage of average total assets and equity. Limited} companies in operation for at least two years, excluding companies in the oil and gas industry, financial industry and public sector

(10)

3.18 Predicted probabilities of bankruptcy

1)

Per cent

0 2 4 6 8 10 12 1988 1990 1992 1994 1996 1998 2000 2002 2004 0 2 4 6 8 10 12

Source: Norges Bank

1) _{Probability that companies stop submitting their acoounts and go bankrupt. Limited} companies excl. companies in the oil and gas industry, financial industry and public sector

Median company Median of the 20% weakest Median of the 40% weakest Hovedstyret desember 2002

3.19 Probality of bankruptcy for large non-listed

companies. KMV model

1)

Per cent

0 3 6 9 12 15 1998 1999 2000 2001 2002 0 3 6 9 12 15 Source: Moody’s KMV

1) _{Non-financial, non-listed companies with} a turnover of more than NOK 70 millions

Median company

Median of the 20 % weakest

Median of the 50 % weakest

(11)

General government

finances

3.20 The budget compromise

• The compromise results in the reallocation of NOK

4.4bn in recorded value. In addition, accrued tax is

reduced by NOK 1.9bn

(12)

3.21a The budget compromise:

Most important changes from original proposal

Direct and indirect taxes:

Increase in minimum deduction from 23 per cent to 24 per cent (NOK 455m).

Increase in depreciation rates for machinery (NOK 1565m). Inheritance tax - increase in tax-free allowance (NOK 195m). Reduced tax on spirits (NOK 110m).

Reduction in taxation of shipping companies (NOK 92.8m).

Pensioners etc.:

Increase in basic pension for married and cohabiting pensioners (NOK 950m)

Ceiling on own contribution for medicines not raised (NOK 380m) Old age and disability pensioners with minimum pension exempted from paying own contribution on reduced rate prescription medicines (NOK 160m).

Source: Ministry of Finance

3.21b The budget compromise:

Most important changes from original proposal (cont.)

Municipalities:

Increased allocations to municipalities (NOK 1000m)

- Including increased focus on day-care centres (NOK 286m) and increased non-taxable income to municipalities (NOK 715m) Increased borrowing limit (NOK 1000m) for refurbishing schools

Other:

Increase in roads budget (NOK 150m)

Rules for layoffs - employer's payment period not to be extended (NOK 240m)

Reimbursement scheme plus net wages ferry companies not to be abolished (NOK 550m)

Lending limits of Norw. State Housing Bank increased (NOK 500m) Transfers of capital totalling NOK 0.8bn to Norway Post and Norwegian State Railways

(13)

3.22 The budget compromise

Coverage:

Reduced allocation to the Norwegian

Public Service Pension Fund NOK 2195m Reduced allocation to "Misc. expenses" NOK 550m Misc. Spending cuts/revenue increases NOK 1655m Total coverage NOK 4400m

Source: Ministry of Finance

3.23 The budget compromise

½ % ½ %

Real, underlying rise in spending

Not available (¾ %)

Municipal income, real growth2)

Approx. 11.6bn 10.6bn

Tax reductions in 2003, recorded value1)

Approx. 8.9bn 6.4bn

Tax reductions in 2003, accrued value1)

2bn 2bn

Structural non-oil deficit, real change from 2002 to 2003

30.7bn 30.7bn

Structural non-oil deficit, level

Compromise Government’s

proposal Fiscal year 2003

1) Some of the tax reductions are associated with changes approved for 2002

2) The Ministry of Finance has not provided updated estimates because of the downward revison by of estimated municipal tax revenues in 2002 by NOK 1bn compared with the estimate in the National Budget. This has resulted in considerable uncertainty concerning tax revenues in 2003. However, as a result of the compromise, municipal revenues will be increased by a nominal NOK 1bn, i.e. approx. ½ % of total municipal sector revenues.

(14)

Regional network

3.24 Regional network (7 regions)

211 Total 15 Public sector 73 Services 36 Retail trade 20 Construction 65 Manufacturing 2 Primary industries Region North Kunnskaps-. parken Bodø Region Central Norway,Allforsk Region Inland Østlandsforsk. Region East Norges Bank Region South Agder forskning Region SW Rogalands forsk. Region NW Møreforsk

Second round

(Contact meetings in October and November) Contacts – by industry

(15)

3.25 Summary

•

General decline in production in the export industry.

There are, however, a number of exceptions to this development

•

Manufacturing production for the domestic market has come to a standstill

•

For retail trade and services, there is growth for activities aimed at the household sector and no growth for activities aimed at the business sector

•

Manufacturing employment is falling, while employment in retail trade is rising

3.25 Summary cont.

•

Supply qualified labour is better now than at the beginning of the year. The supply is better than usual for manufacturing, services and the public sector

•

Reduction in manufacturing investment. Capacity utilisation is normal in all sectors

•

Contacts both this in this round and the last expressed considerable uncertainty about developments next year. This results in investment restraint and strong focus on reducing costs