exports to china have increased, but are still limited. over several years, enterprises in central european countries have been a source of competition for norwegian jobs. integration is also opening new markets and providing new sources of income for norwegian enterprises. at the same time, tender requirements and the freedom of establishment have increased the competition facing norwegian industries that were previously sheltered. a steadily larger share of norway ’ s consumer goods imports come from china and central european countries. growth in imports from china was provided with an additional impetus after china became a member of the world trade organization in 2001. imports from eastern europe have also continued to grow. there are many economic agents in norway that are benefiting from globalisation. consumers are enjoying lower prices for goods and services. input prices have fallen and companies can sell their products in new markets. but there are also costs. norwegian businesses and jobs may lose in the competition. the challenge lies in moving idle resources to new business activities. this requires adaptability and a sound cost policy. the norwegian economy is unique in being both a fully developed economy and a major oil exporter. norway is the world ’ s third largest oil exporter. in the future, we will become an increasingly important exporter of natural gas. the petroleum sector accounts for 44 per cent of exports and 17 per cent of gdp. the present value of remaining petroleum reserves has been estimated at close to nok 2 000 billion ( present rate of net cash flow ). the bulk of norway ’ s petroleum wealth will be extracted over a period of 40 years, from 1990 to 2030. we are now in a phase where petroleum wealth is being converted from natural resources under the seabed to financial assets abroad. the government petroleum fund was established in 1990 with a view to promoting an even distribution of wealth across generations. the intention behind the petroleum fund is that the cash flow from petroleum production should be channeled to the fund and invested abroad. by doing so, changes in oil prices have little effect on the mainland economy. this chart illustrates how petroleum activity is separated from the mainland economy. oil companies ’ revenues are in foreign currency. the government net cash flow from taxes and direct ownership in oil companies is transferred directly to the petroleum fund. the return on the petroleum fund investments also adds to the capital. of the total capital accumulated last year, nok 59 billion was spent over the fiscal budget. the petroleum fund invests only in foreign markets. the fund serves as a buffer against shocks. changes in petroleum revenues are

below zero. if the economy is again exposed to unexpected negative disturbances, we will have little scope for manoeuvre. the most important contribution monetary policy can make to sound economic developments in the long term is low and stable inflation. the inflation target provides an anchor for economic agents ’ expectations concerning future inflation. we have a very open economy with free capital movements. stable inflation expectations also contribute to more stable krone exchange rate expectations. inflation targeting means setting the interest rate so as to achieve a numerical target for inflation. norges bank sets the interest rate with a view to stabilising inflation at 2. 5 per cent within a reasonable time horizon, normally 1 - 3 years. the more precise horizon will depend on disturbances to which the economy is exposed, and how they affect the path for inflation and output. the inflation target represents a framework for, not an obstacle to, monetary policy ’ s contribution to stabilising output and employment. we have chosen flexible inflation targeting. variability in output and employment as well as inflation is given weight. the objective of monetary policy is to safeguard the value of money in the long term, and seek to contribute to stabilising economic developments in the short and medium term. the objective of monetary policy is low and stable inflation. the instrument is the interest rate. the interest rate influences inflation with a lag and with varying intensity. as interest rates fall, household and local government consumption and investment tend to accelerate. higher demand leads to higher output and employment. wage growth may pick up. higher wage growth combined with higher profit margins will result in higher inflation. lower interest rates normally lead to a depreciation of the krone. imported goods then become more expensive and inflation accelerates. expectations play a key role in price and wage formation, and they are influenced by the interest rate. expectations concerning future inflation and economic stability have considerable impact, not least in the foreign exchange market. in the long term, output and employment are determined by the supply of labour, capital and technology and restructuring capacity. monetary policy can contribute to smoothing fluctuations in output and employment. norges bank weighs stable inflation against stable output and employment. the economy grows over time. output will in some periods lie below long - term trend growth and in others above trend. stabilising output growth means seeking to maintain actual output near trend. the output gap is a measure of the difference between the actual level of output and potential output. developments in the output gap provide a basis for assessing cyclic