In addition to a favourable environment for Norwegian exports, Norwegian importers have gained access to new markets in central Europe and Asia which offer substantially cheaper consumer goods. As a result, Norway’s terms of trade have improved appreciably over the last few years. 6  BIS Review 37/2008  A second characteristic of this upturn is that productivity growth has been unusually high, resulting in lower production costs. The business sector has been quick to adapt and change, and to make use of new technology that is available in an international market. Banks and other service sectors, in particular, have outperformed other countries in this respect. This is probably due to the modernisation of the economy through the 1980s and 1990s, which resulted in more efficient markets. A third characteristic has been an ample supply of labour, which has boosted output growth. Over the past two years, an increase in labour force participation and high inward labour migration has provided room for continued high growth. In both 2006 and 2007, the number  BIS Review 37/2008  7  of employed increased by over 3 per cent. The number employed increased by 93 000 persons between 2006 and 2007, the highest increase over the past few decades. The sharp growth in employment has partly been reflected in a decline in unemployment and an increase in the labour supply. This is due to inflows of foreign labour and increased labour participation among the existing population. Labour force participation in the age group 15-74 has never been higher.

At the same time, an increasing proportion of lending by the banks is to smaller enterprises and households, where the possibility of evaluating the credit risk in a traditional way is poorer than for large companies. Altogether therefore considerably higher demands are made on the banks’ risk management systems than previously. Major investments in knowledge on modern financial economy and IT-based risk systems are required for instance. This development is taking place at the same time as increased competition is tending to squeeze profits and information technology is changing the conditions for provision of payment services. When traditional bank activities shrink and change, the direction of activities has to be reviewed. The banks can for instance opt to take part in the provision of capital in the securities market and generate profits by charging fees for this activity. One strategy may be to offer businesses and private persons all financial services such as advice, insurance and payment services. In order to be competitive, larger banks are then often required, which is a driving force behind the increased frequency of bank mergers and mergers between banks and insurance companies taking place. Another alternative is of course to concentrate activities and become competitive within a particular niche. Small and medium-sized enterprises need for instance to have access to capital via banks which are able to obtain knowledge on the risks associated with lending to these. The possibility of turning to the securities market to have their need of capital satisfied should above all be confined to large businesses.