export enterprises. expensive and reduced access to credit, high interest expenses and uncertainty about developments ahead amplified the downturn towards the end of 2008. private consumption fell markedly, the decline in housing investment accelerated and mainland business investment started to fall. the downturn in the world economy and the abnormal conditions in financial markets are expected to continue to mark the norwegian economy ahead. mainland gdp is projected to contract by 1 per cent between 2008 and 2009. norwegian government finances are sound, with substantial net wealth, although the surplus will be reduced by the fall in oil prices. the automatic stabilisers in the national budget together with discretionary fiscal policy will stimulate the mainland economy by the equivalent of 5 per cent of gdp from 2008 to 2009. fiscal policy is assumed to become less expansionary between 2010 and 2012. government oil revenue spending is expected to be brought back into line with the fiscal rule when cyclical conditions eventually normalise. we assume that prospects for higher unemployment, a fall in house prices and a high level of debt will induce households to build up financial buffers and reduce debt. the saving ratio is expected to increase considerably. net lending is projected to be positive this year after being negative since 2004. as household borrowing has been considerable in recent years, deleveraging in the household sector is important to long - term stability in the economy. the outlook ahead and monetary policy assessments inflation will be curbed by lower capacity utilisation. the marked increase in unemployment now envisaged will result in lower pay increases this year and next. prospects for weaker growth and lower inflation imply a lower interest rate than presented in the interest rate projection from our previous forecast in december. there is also a risk that the global downturn will be deeper and more prolonged than expected. if this proves to be the case, growth in the norwegian economy will not pick up as quickly and inflation will fall more sharply than we currently assume. the objective of avoiding a pronounced downturn indicates in isolation that the interest rate should be rapidly reduced to a low level. on the other hand, we have already made substantial reductions in the key policy rate. with a low interest rate, households may save less and the turnaround may occur more rapidly than we assume. this indicates in isolation that changes in the interest rate should be gradual or that further interest rate cuts should be put on hold. overall, the outlook and balance of risks suggest that the key policy rate should be gradually reduced further to a level of around 1 per cent in the second half

to the federal reserve ’ s requirement for annual capital planning by certain large bank holding companies, it may be useful to provide some further details on our expectations. in the first place, the federal reserve will require bank holding companies that are subject to our proposed capital plan rule ( generally companies with $ 50 billion or more in total assets ) to take affirmative steps to improve capital ratios, such as external capital raises, when those steps would be needed to meet each basel iii transition target on time. next, it is important to note a statement made by the governors and heads of supervision ( ghos ) – the oversight body of the basel committee – in announcing agreement on basel iii in september 2010. the ghos said that banks should “ maintain prudent earnings retention policies ” so as to meet both the new minimum equity standard and the conservation buffer “ as soon as reasonably possible. ” 2 in the spirit of that statement, we will expect large bank holding companies that have not yet met the fully phased - in basel iii requirements ( including any expected capital surcharge for globally systemically important banks ) to improve their capital ratios steadily during the transition period through prudent earnings retention policies, even if they already meet any applicable intermediate targets. in practical terms, we will monitor their progress through the annual capital planning exercise, about which i shall have more to say a bit later in these remarks. we will be comfortable with proposed capital distributions only when we are convinced they are consistent with a bank holding company readily and without difficulty meeting the new capital requirements as they come into effect. turning now to the second thread of capital regulation reform, the introduction of a capital requirement keyed to the systemic importance of financial firms, i am sure you are all aware that last friday the basel committee released its framework for calibrating capital surcharges for banks of global systemic importance. this initiative is consistent with the federal reserve ’ s obligation under section 165 of the dodd - frank act to impose more stringent capital standards on systemically important financial institutions, including the requirement that these additional standards be graduated based on the systemic importance of the bank. both the dodd - frank provision and the basel framework are informed by the fact that the failure of a systemically important firm would have substantially greater negative consequences on the financial system than the failure of other firms, even quite sizeable ones. yet obviously such a firm has no incentive to take account of these negative externalities. an ancillary rationale is that additional capital requirements could