In particular, given Asia’s role as an important growth centre in the global economy and the growing significance of the financial markets in Asia as a destination for global financial flows, there has been increased focus on central banks in Asia. Asian economies for several decades have established strong financial and economic linkages with the rest of the world. In this recent decade in particular, Asia has experienced significant structural changes that have altered the dynamics of the global economy and growth patterns. Since 2000, per capita income levels in Asia have risen twofold. With a growing middle class population that will reach 3.3 billion by 2030, Asia is projected to become the world’s largest market for consumer goods and services. Low unemployment and a resilient financial sector has reinforced this trend. Domestic demand has continued to strengthen while the growth in intra-regional economic and financial activities has been sustained. Intra-regional trade now represents more than 50% of total trade, increasing from 32% in 1995. Similarly, intra-regional portfolio investments have risen from 20% of total assets holdings in 2001 to 28% today. The growth in cross-border trade and investments in Asia has not only provided the impetus for the development of the domestic economies, but also enabled the region to emerge as an important economic bloc. A more recent phenomenon is the effort to promote greater regional financial integration through increased cross-border banking and financial activities within the region.

In the early phases of the upturn, output growth primarily reflected a strong increase in the number of person-hours worked partly owing to the marked increase in average working hours when sickness absence fell in 2004. A high level of inward labour migration after EU enlargement in 2004 also contributed to increasing economic capacity. Historically, there has been a close relationship between the change in prices for domestically produced goods and services and the level of capacity utilisation, here measured by the output gap. This relationship broke down in 2006. Surprisingly low inflation through 2006, despite appreciably stronger output and employment growth, may indicate that developments have been influenced by conditions on the production and supply side of the economy. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are probably several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade considerably. Prices for oil and gas, shipping, fish, industrial commodities and engineering products have increased considerably. Moreover, Norwegian importers have gained access to new markets in central Europe and Asia which offer considerably cheaper consumer goods. The terms of trade have improved by about 40 per cent since 2002. A similar situation has not been seen since World War I when earnings in the shipping industry and other export industries were exceptionally high for a period. Second, an ample supply of labour has boosted output growth.