Over the years, we have developed an internationally competitive petroleum supply industry of considerable scope. While the companies operating on the Norwegian continental shelf had to import virtually all their equipment in the 1970s, the import share has now dropped to just below 40 percent. The Norwegian engineering industry has flourished. The supply industry has become a major export industry. Almost two-thirds of total Norwegian exports are now linked to the petroleum industry. Chart 10: A manufacturing sector divided Vigorous activity in the oil and gas industry also helped Norwegian manufacturing fare better than manufacturing in other OECD countries during the financial crisis. The petroleum industry is a buffer against the current downturn in advanced economies. In that respect, the Norwegian economy has become more robust. The flip side of the coin is that our economic future is becoming increasingly dependent on oil and gas activities. The substantial petroleum revenues and the spillover effects from oil and gas production are reflected in the  BIS central bankers’ speeches  5  labour market and are driving up house prices and debt. In those respects, the Norwegian economy is also vulnerable. In the mid-1980s, the Norwegian economy was shaken by a sharp and long-lasting fall in oil prices. Today’s situation is quite different. Oil prices are persistently high, primarily reflecting the emergence of newly industrialised countries. But it is risky business to take today’s oil price levels for granted. New energy production technologies are being developed. Climate challenges will not disappear.

Growth in the euro zone has been relatively weak, but last year there were signs that economic activity was beginning to improve there, too. At the same time as growth in demand in the world economy has been strong, price pressures have been held back. Although oil and other commodities have become significantly more expensive for consumers, the general price increases have been relatively small on the whole. This can probably be partly explained by increasing international competition. The upswing in global economic activity has also characterised developments in the Swedish economy, which has grown strongly in recent years, with the exception of a slowdown at the end of 2004/beginning of 2005. Despite the good growth in demand, inflation has been low in Sweden. This is largely attributable to import prices excluding oil  BIS Review 44/2006  1  developing weakly and to cost pressures being held back, partly by the strong productivity growth and low capacity utilisation. The development we envisaged in the February Inflation Report was that international growth would continue to be good. There were some question marks regarding developments in the United States and in the euro area, where preliminary statistics for the fourth quarter of 2005 were surprisingly weak. Our assessment was that this could largely be explained by transient factors and that the upswing could nevertheless continue, although possibly at a slightly slower rate. Our assessment for the Swedish economy was that domestic demand would be strong over the coming years, with GDP growth peaking in 2006.