the economy. even though norges bank publishes an interest rate forecast, this does not mean that the interest rate will follow this precise path throughout the projection period. forecasts of inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. disturbances to the economy may result in changes in the forecasts. data revisions imply that the current economic situation is not fully known. our ambition must be to reduce uncertainty with regard to our own response pattern. that actual interest rate developments will deviate somewhat from the bank's forecast will probably be the rule rather than the exception. in monetary policy report 2 / 07, it was pointed out that high capacity utilisation and higher cost inflation may on the one hand lead to higher - than - projected inflation. sustained high productivity growth, a more pronounced shift towards imports from low - cost countries and a stronger krone exchange rate may on the other hand result in lower - than - expected inflation. when norges bank ’ s executive board decided on 26 september to raise its key policy rate by 0. 25 percentage points to 5. 0 per cent, it was stated in the press release that growth in the economy has been stronger than expected, cost inflation is on the rise and that there are prospects of a further pick - up in price inflation. it was also pointed out that financial markets have been turbulent since the beginning of august, the global economic outlook is uncertain and the krone is strong. the executive board therefore considered the alternative of leaving the key policy rate unchanged at this meeting. in addition, it was stated that if the turmoil in financial markets persists and the krone remains strong, and this has considerable consequences for the outlook for inflation, output and employment, norges bank ’ s key policy rate may be raised to a lesser extent than envisaged in monetary policy report 2 / 07. thank you for your attention.

utilisation can lead to higher wage growth and thereby higher inflation. a tight labour market will thus imply higher interest rates. norway has substantial petroleum wealth, but our most important resource is labour. a smoothly functioning labour market is therefore important to our welfare. although it is difficult to quantify in exact terms the contribution of labour to value added, there is no doubt that even a small increase in the “ return ” on labour could generate considerable gains. labour market legislation must be formulated to provide incentives to work. in norway, a relatively large share of the population is now economically active, after lagging behind our neighbouring countries up to the 1990s. it should be noted that, even though labour force participation is high and unemployment is low, the average employee in norway works far fewer hours per year than employees in the other nordic countries. this gap seems to have widened through the 1990s and up to today. the standard working year is short in norway, and norway also has a higher percentage of part - time employees than other countries. the opportunity to work part - time has for a long time made it easier for women and young workers to enter the labour market. there are considerable outflows from the labour market into various social security schemes. sickness absence is high, and the share of the working - age population on rehabilitation schemes or receiving disability pensions is rising. many workers choose to take early retirement under the afp scheme ( contractual early retirement ) when they reach the age of 62, and this number will probably increase in the years ahead. in norway, close to 600 000 persons of working age receive social security benefits or pensions. this is equivalent to 25 per cent of the labour force. a disturbing aspect is that disability is increasing among young people. we know from experience that this group tends to remain outside the labour force for parts or all of their lives. in the second quarter, sickness absence stood at 6. 5 per cent of contractual person - days, although there are substantial occupational and geographical variations. in rogaland, sickness absence is 1. 4 percentage points lower than the national average. if sickness absence in the rest of the country falls as low as in rogaland, nearly 30 000 additional person - years would be available for productive activity. reduced sickness absence and reduced outflows into social security schemes – particularly among young people – would result in substantial economic gains. economic developments the norwegian economy is in a period of strong expansion after a marked upturn since summer 2003. the upturn