in many countries. in the us, fiscal policy has become somewhat more expansionary after many years of relatively tight budgets. many european countries have also taken a pause in the consolidation of state finances. norges bank increased the sight deposit rate – which is our key rate – by a total of 1½ percentage points last year. so far this year, the key rate has remained unchanged. as a result, the difference between short - term rates in norway and other countries has increased. money market rates are about 3 percentage points higher than among our trading partners. money market rates are 3½ percentage points lower in sweden than in norway. the wider interest rate differential implies, in isolation, a somewhat tighter monetary policy. the krone becomes a more attractive investment currency, and this may have contributed to strengthening the krone. investments in the nok market are now generating a return of 7 per cent. a stronger krone reduces the cost of imported goods and services for enterprises and households. imported inflation is lower. so far this year, the import - weighted krone exchange rate has appreciated by about 3 per cent. substantial uncertainty surrounding international economic developments there is considerable uncertainty attached to international economic developments. in the us, industrial output and retail sales have weakened markedly over the last three months. between march and april employment declined by more than 200 000. gdp growth slowed from an annualised rate of a good 5 per cent in the first half of 2000 to about 1 per cent in the fourth quarter of last year and the first quarter of 2001. us equities, as measured for example by the dow jones index, declined markedly through 2000 and in the first quarter of this year. stock markets in other countries also fell during this period. equity prices have picked up again since the beginning of april, however. in addition, industrial commodity prices and oil prices have risen over the last month. moreover, long - term interest rates have increased. these developments may indicate that many operators in financial markets and commodity markets have again become somewhat more optimistic about the prospects ahead. household and business confidence also deteriorated through the latter half of last year and early this year, but has remained steady over the last two to three months, as illustrated by the confidence indicators in this chart. there is substantial uncertainty associated with developments in japan. industrial output and exports have declined. the financial sector is struggling in the face of large losses and poor performance, and the general price level is falling. in the euro area the picture is mixed. growth

that is too high. the global economy has experienced a slowdown during the last year. the downturn in the us has had contagion effects on european and asian economies through its impact on world trade and the financial markets. capital markets are global, and when revenues decline in the us, enterprises with operations in many countries also reduce investment and operating expenses in europe and asia. industrial production has declined markedly in all major regions of the world economy. in norway, manufacturing output has been more stable. norges bank presented its last inflation report on 27 february. we expect price inflation to be about 2½ per cent in two years, if growth in the global economy picks up as assumed. the tight labour market will probably continue to result in fairly strong growth in labour costs and rather sharply rising prices for domestically produced goods and services. annual wage growth is projected at 5 per cent in the period ahead. a subdued rise in prices for imported goods is pushing down overall price inflation. the projections are based on the technical assumption that the krone exchange rate will remain stable. on the whole, the risk associated with the inflation projection is regarded as balanced. exchange rates between the major currencies fluctuate widely. the effective exchange rate on the us dollar has risen by more than 30 per cent since 1995. the german mark ( later euro ) has depreciated by about the same amount. the effective exchange rate for the japanese yen has fluctuated sharply. small countries have also experienced wide exchange rate fluctuations. the swedish krona has changed considerable in the last 10 years and is now 10 per cent weaker than in the summer of 2000. the australian dollar has depreciated by more than 30 per cent since the spring of 1997. countries whose exports include a large component of raw materials tend to experience considerable volatility in their exchange rate. australia is one example. fluctuations in commodity prices entail changes in countries ’ terms of trade, which measures the ratio of export to import prices. changes in the terms of trade have an impact on the exchange rate, which in turn dampens the impact on profitability. the exchange rate acts as a buffer. in the 1990s, the fluctuations in norway ’ s terms of trade were especially wide. changes in oil prices were an important reason for this. the krone exchange rate has not fluctuated much compared with other countries. the petroleum fund acts as a buffer against fluctuations in the oil price, because the fund ’ s capital is invested abroad. this