denmark. one explanation for this, common to all these countries, appears to be keener competition, which has led to high productivity growth. in the first round, heightened competition affects companies ’ profit margins. but enterprises respond by reducing their costs. this occurs in part in the individual business, but subcontractors also come under pressure to reduce their prices and enhance efficiency. increased competition therefore triggers higher productivity growth in the economy. low inflation may thus be matched by higher productivity. economic developments external cyclical developments and events are of considerable importance to developments in the norwegian economy. in autumn 2003, activity in the global economy picked up from a very low level. after rising sharply for several quarters, economic growth in the us slowed in the second quarter of 2004. economic growth has picked up from a low level in the euro area. growth has also gained momentum in sweden and the uk. strong growth in the us and china exerted upward pressure on commodity prices in 2003 and into 2004. a number of central banks have increased interest rates. interest rate increases are expected in a number of countries. oil prices have also risen considerably during the summer. high oil prices constitute a risk factor with regard to developments in the global economy. in norway, output growth has picked up after a growth pause in 2003. the interest rate reductions since 2002 have contributed to a turnaround and the economy has experienced a soft landing following the years of high cost inflation in norway and the period of weak activity in the world economy. lower interest rates in particular have contributed to sustaining growth in disposable income and private consumption. household demand is one of the most important driving forces in the norwegian economy. low interest rates, high growth in real income and improved job security are now creating a basis for strong growth in household consumption. high wage growth over several years from 1998 has eroded the competitiveness of the norwegian business sector. the nominal krone exchange rate measured by the trade - weighted index is now approximately at the level prevailing in the mid - 1990s, while labour costs in manufacturing have risen considerably more than among our trading partners in the same period. the business sector is still burdened with the loss in competitiveness that is due to high wage increases. the exposed sector has been scaled back. companies that are still in operation may be in a better position to cope with the high wage level. a more efficient service sector may also have strengthened the export industry. nevertheless, costs may hamper activity and employment growth. the cost level with

at neutral taxation of capital income and interest. marginal taxes could be lowered. the tax deductibility rate for interest was considerably reduced for households. it became more advantageous to save and less advantageous to borrow. the pressure on our tax system has also been reduced because public spending control has improved over the past 10 - 15 years. fourth, norwegian credit markets have undergone structural changes. the function of state banks has become more concentrated and their share of the credit market has been reduced from more than 30 per cent in the1980s to 8 per cent today. the first wave of banking deregulation in the mid - 1980s was not particularly successful. it was only after the banking crisis and the tax reform that norwegian credit and capital markets started to function efficiently. it became more profitable to channel capital to investment projects that yield the highest social return and locked - in capital was freed up for new industries and businesses. it became easier for entrepreneurs to start up and build up businesses and capital. illustrative of the enterprise spirit in the period 1998 - 2003 – which was not a period of particularly strong growth – was the start - up of 12 new businesses for every 100 existing businesses, which was quite high compared with other countries. norwegian credit and capital markets are relatively well developed today. sound projects will always find funding. the main weakness is still to be found in housing, property and wealth taxation, which favours considerable overinvestment in dwellings and holiday homes. in addition to the changes i have highlighted, the framework conditions for the electricity market, telecom market, aviation and audiovisual industry have changed. retail trade has been liberalised. state - owned companies were listed on the stock exchange and new forms of managing public entities were developed. economic growth has also been bolstered by higher female labour force participation. higher educational attainment and maternity leave have also made a contribution. just as there are new companies that start up each year, there are also many people who change jobs every year. on average for the years 2000 - 2005, 260 000 work contracts were terminated. every eighth person changed jobs. at the same time, new jobs were created, bringing net annual job creation to 4 000 in this period. job change and the diffusion of new technology tend to go hand in hand. the key here is that companies have had the opportunity and capacity to rationalise and adapt when new technology has made this profitable. the modernisation of economic systems must be given the main credit for the