In Norway, output growth has picked up after a growth pause. The interest rate is an effective instrument. The interest rate reductions since 2002 have contributed to the turnaround and the economy has experienced a soft landing, following the years of high cost inflation in Norway and the  BIS Review 23/2004  3  cyclical downturn in the world economy. Lower interest rates in particular have contributed to sustaining growth in private consumption. Household demand will probably be the most important driving force in the Norwegian economy in the period ahead. Against the background of high real income growth, improved job security and expectations of continued low interest rates ahead, household consumption is expected to exhibit strong growth. Petroleum investment exhibited brisk growth in 2003. Growth in petroleum investment appears to be continuing in 2004, but probably at a slower rate than in 2003. Low interest rates and house price inflation imply higher housing investment in the period ahead. Fiscal policy is also stimulating activity. The impact of the interest rate decline on private consumption is likely to be stronger this year than in 2003. It takes time for changes in Norges Bank’s key rate to feed through fully to interest rates for households. Norges Bank’s calculations show that if we look at 2003 and 2004 as a whole, it appears that the impact of interest rate changes will result in an overall reduction of about NOK 15 billion in household net interest expenses before tax.

Whilst risks to the outlook for global growth continue, with new events unfolding daily, Asia’s economic growth remains strong and transformation is expected to expand well into the future. This growth is set to drive increasing trade in goods and services, as well as the flow of capital between the region and the world. At the same time, Asia is also intensifying intra-regional financial and economic integration that would contribute towards accelerating the region’s growth prospects. Adding to these transformative trends is the march towards urbanisation which will continue to stimulate demand for infrastructure development. All these factors will have an important influence on the way in which the financial services industry responds to new growth opportunities in the region. To support Asia’s growth, financial markets in Asia must continue to grow in size and sophistication to intermediate capital towards productive investments. We can expect increasing demands being placed on Asian banks for services and expertise in trading, risk management, structured financing and loan syndication, infrastructural financing, and capital raising. Equally, recent efforts focusing on strengthening regional financial integration to facilitate the increasing intra-regional trade and investment, such as the ASEAN Banking Integration Framework, will offer tremendous opportunities for banks with the right credential to establish their presence as regional players. On the retail side, there exists vast potential for growth – owing much to the demographic transformation in the region. Asia is now home to a growing middle income population, the number of which is projected to reach 3 billion by 2030.