A change in trade patterns and external economic conditions have resulted in an unexpectedly sharp fall in import prices, even when measured in terms of what Norwegian importers pay in foreign currency. 4  BIS Review 16/2004  Consumer price inflation in Norway declined sharply through 2003 due to cheaper import as the exchange rate strengthened. In addition, prices for imported goods have fallen measured in foreign currency as shown in the next chart. Chart 18. Price indicator for imported consumer goods. Foreign currency. Index Again, this is a sign of the global trends I have mentioned earlier. The change in trade patterns has made a considerable contribution to the sharp decline in prices for clothing and audiovisual equipment. Rapid technological advances have also pushed down prices for audiovisual equipment. In Norway, competition has probably increased in the retail industry and other service sectors in recent years. Initially, stronger competition affects companies’ profit margins. But enterprises will respond by reducing their costs. This will occur in part in the individual enterprise, but subcontractors will also be required to reduce their prices and enhance efficiency. Therefore, increased competition usually triggers higher productivity growth in the economy. Low inflation may therefore be matched by growth in productivity. The prospect of low inflation, (due to a cyclical downturn last winter, low pay increases last year, fiscal discipline and an unexpected decline in inflation), has resulted in a considerable easing of monetary policy.

The development of new markets and instruments, for example credit derivatives, has also led to a broader risk spread than earlier. The improved diversification of risk is probably one of the reasons that world financial markets have coped with the stock market decline and the accounting scandals with limited damage to the wider economy. This is probably one reason why the downturn following the stock market decline in 2000 was considerably less pronounced than during earlier downturns. The new instruments spread risk, but do not eliminate it. Financial markets have become highly complex. This alone entails an operational risk, which is a challenge to participants and the supervisory authorities. BIS Review 16/2004  1  Increased trade promotes growth and lays a basis for prosperity. A number of Asian countries have experienced strong, export-led growth - Japan from the 1950s and several countries in Southeast Asia from the 1960s. In recent years, China has become an important player in international trade, and is now probably the world’s fourth largest trade nation. The Asian economies and the rest of the world have become more integrated. Technological advances and a sharp fall in prices in the IT and telecommunications sectors have exposed a number of services that were previously sheltered from competition from low-cost countries. EU enlargement this spring, with ten new members, is also influencing the division of labour in Europe. Implications for the Norwegian economy Intensified competition from Japanese and Korean shipyards had serious implications for Norwegian shipbuilding in the 1970s and 1980s.