vulnerable structural adjustment in the business sector is the key to economic progress. over the past 40 years, the oil and gas industry has been an engine of innovation and growth in norway. in the beginning phases of the norwegian oil age, the impulses to other economic sectors were modest. over the years, we have developed an internationally competitive petroleum supply industry of considerable scope. while the companies operating on the norwegian continental shelf had to import virtually all their equipment in the 1970s, the import share has now dropped to just below 40 percent. the norwegian engineering industry has flourished. the supply industry has become a major export industry. almost two - thirds of total norwegian exports are now linked to the petroleum industry. chart 7 bis central bankers ’ speeches vigorous activity in the oil and gas industry helped norwegian manufacturing sectors during the financial crisis. the petroleum industry is a buffer against the current downturn in advanced economies. in that respect, the norwegian economy has become more robust. the flip side of the coin is that our economic future is becoming increasingly dependent on oil and gas activities. the substantial petroleum revenues and the spillover effects from oil and gas production are reflected in the labour market and are driving up house prices and debt. thus, the norwegian economy is also vulnerable. in the mid - 1980s, the norwegian economy was shaken by a sharp and long - lasting fall in oil prices. today ’ s situation is quite different. oil prices are persistently high, reflecting the emergence of newly industrialised countries. but it is risky business to take today ’ s oil price levels for granted. new energy technologies are being developed. climate challenges will not disappear. if oil prices were to fall again, a number of off - shore investment projects would become unprofitable, with considerable spillover effects on other sectors of our economy. unemployment in norway would probably rise. we cannot eliminate that risk. curbing the exploitation of oil and gas resources is not a feasible alternative. the abiding question is rather how to limit the vulnerability associated with increased oil dependence. the fiscal rule for petroleum revenue spending is an important buffer. the petroleum fund mechanism and moderate and predictable spending of petroleum revenues over the central government budget contributes to enhancing economic stability. reserves accumulated in the government pension fund global provide fiscal leeway in the event of an economic setback, as observed in 2008 and 2009. by limiting petroleum revenue spending to the expected real return on the fund, we ensure that our petroleum wealth will benefit future generations. a balanced approach to revenue spending will

allow future generations to benefit from what is spent on public investments domestically. chart 8 bis central bankers ’ speeches the spending of petroleum revenues also has another facet. it increases the cost of norwegian labour. during upturns norwegian companies have fared well, in spite of rapidly rising costs, thanks to efficiency gains and rising producer prices. some other countries in europe allowed costs to rise at broadly the same pace over a number of years. now these countries are in a downturn with a high level of spare capacity, and with a need to improve competitiveness. should the outlook for the petroleum industry show a significant shift, norway will have to start down the hard path of economic adjustment. the high level of costs in our country may become a hindrance in the competition for tenders and market shares. what we need above all is a profitable and efficient business sector that can adapt to new times. in that respect, there are some aspects of the norwegian economy that give cause for reflection. chart 9 on the surface, developments are positive. nominal mainland gdp growth at current prices has been surprisingly stable. over the past 20 years, nominal mainland gdp has increased by around 6 percent annually, and growth is still hovering around that trend. there were some tendencies towards overheating in the years prior to the financial crisis. but the correction that followed during and after the crisis has brought growth back to trend. there is little in this chart to indicate that the world economy has recently been through the most severe economic downturn in post - war history. the picture changes when growth is broken down into price and volume. as mentioned, high prices for domestically produced goods have supported our country ’ s income. since 2005, producer prices have increased considerably faster than trend. this illustrates that mainland businesses have also benefited from the substantial improvement in norway ’ s terms of trade. bis central bankers ’ speeches chart 10 economic activity, on the other hand, slumped during the financial crisis. although economic growth has picked up in the past few years, the level is still well below the pre - crisis trend. this could indicate that the financial crisis and the debt crisis have had lasting effects on the norwegian economy as well. the picture becomes even clearer when population growth is taken into account. measured per capita, we do not generate more value today than we did five years ago. this picture is similar to that of other advanced economies. the break from the years prior to the financial crisis is clear. growth is being supported by immigration and employment growth