at the end of the expansionary period. the household saving ratio has picked up somewhat since 2000, probably as a result of the decline in the equity market - although it is still low. similarly, the federal government budget deficit - as a result of expenditure in connection with war combined with substantial tax reductions - will increase. the current account deficit in the last quarter of 2002 was equivalent to 5¼ per cent of gdp. the low saving ratio and the substantial current account deficit has contributed to a depreciation of the us dollar. conditions in the us today are more conducive to growth than they were six months or a year ago. the low interest rate will support an increase in both consumption and investment. corporate profits and financial balances have improved. companies ’ liquidity is solid. at the same time, however, it is uncertain how far shortfalls in corporate pension schemes will weaken growth impulses. and with low capacity utilisation, it may take time before investment gains momentum. 72. 9 per cent in march – against a 30 - year average of 80. 2 per cent 1972 - 2003. private defined - benefit pension schemes are estimated at approximately 3 per cent of gdp. estimate by the pension benefit guaranty corporation, referred to in the economist, may 2003. as mentioned earlier, the driving forces behind the norwegian business cycle have differed from those in other countries. in norway, the business cycle has followed a course more similar to previous fluctuations, with a sharp rise in household demand, labour shortages and strong wage growth. measured in a common currency, labour costs for norwegian industrial workers have increased by a total of 19 per cent more than was the case for our trading partners in the period 1996 - 2002 ( 13 per cent due to wage growth and 6 per cent due to the appreciation of the krone ). in the years around the millennium, the depreciation of the krone veiled the underlying deterioration in competitiveness. in may 2000, the krone exchange rate reached its lowest level in six years. in the subsequent period up to end - 2002, the krone appreciated, and the effects of high wage growth have gradually come into evidence in company accounts. high labour costs measured in a common currency have weakened profitability in the business sector. this is the reason for the current cost cuts, the decline in employment and the increase in unemployment. for a long time, a stable exchange rate and the level of cost inflation among our trading partners provided an anchor for

. this orientation of monetary policy will normally also contribute to stabilising output and employment. the impact of monetary policy occurs with considerable and variable lags. the current inflation rate does not therefore provide sufficient information to determine the level at which interest rates should be set now. our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. two years is thus a reasonable time horizon for achieving the inflation target. the interest rate influences inflation indirectly via domestic demand for goods and services and via its effect on the exchange rate. when interest rates rise, it becomes more profitable for households to save, and consumption will therefore be postponed. similarly, borrowing becomes more expensive, and investment will decline as a result. lower demand then curbs the rise in prices and wages. higher interest rates make it more attractive to invest in nok and borrow in foreign currency. therefore, higher interest rates normally lead to an appreciation of the krone. this makes imported goods cheaper. in addition, a stronger krone reduces activity, profitability and the ability to pay in the internationally exposed sector. major economies such as the us, germany and france are struggling with stagnation and fears of recession. sluggish developments have led many countries to set very low interest rates in an attempt to stimulate growth. the business cycles in norway and other countries have been desynchronised. while the turnaround abroad took place two years ago, the norwegian economy continued to show a high level of activity. towards the end of the upturn, the economy was facing labour shortages, higher wage growth and a sharp increase in household consumption and debt. interest rates had to be kept at a high level in norway. this led to a widening of the interest rate differential against other countries. the main explanation for the wide interest rate differential is that interest rates abroad are at a historically low level. business cycles have also diverged in other ways. the turnaround abroad, which started in the us in 2000, seems to have been related in particular to overinvestment in the business sector, exaggerated expectations concerning future earnings and equity market bubbles that burst. there have been examples of this in norway too, and the norwegian economy has over time been influenced by weak external developments. however, other factors seem to have been more instrumental in generating the turnaround in the norwegian economy. the high rate of economic expansion is now beginning to ebb away as a result of self - regulating mechanisms and a tightening of monetary