reports a very high level of activity among suppliers to the petroleum industry. however, investment may decline as large development projects like ormen lange, kristin and snøhvit near completion. it is uncertain how sharp the fall will be, but today ’ s high level of exploration activity and a long period of high oil prices imply that petroleum investment will remain high in the years ahead. investment in the petroleum sector has spillover effects on the mainland economy, initially on the engineering industry and the construction sector. looking forward, the scale of petroleum investment and its spillover effects are highly uncertain. the last time petroleum investment showed a sharp increase, in 1997 / 1998, growth was substantially stronger than had been assumed. an upturn occurred in the norwegian economy as a whole at the same time. the unexpected increase in petroleum investment contributed to an economic upturn that was substantially stronger than projected. if oil prices rise further or remain at the current high level for a long period, petroleum investment may again amplify the cyclical upturn to a greater extent than projected. let me now return to the framework for economic policy in norway. the storting ( norwegian parliament ) has approved a fiscal guideline for the use of petroleum revenues. it states that, in general, petroleum revenue spending shall be limited to 4 per cent, or the expected annual real return on the petroleum fund over time. this fiscal rule shall ensure that the use of revenues in the norwegian economy is at a level that can be sustained over time. the usefulness of a fiscal guideline is that it gives weight to long - term considerations when addressing day - to - day economic policy challenges. the fiscal rule stabilises enterprises ’ expectations concerning competitiveness and the krone exchange rate, thus preventing abrupt and pronounced swings in the structure of the economy. if the government authorities disregard the rule, enterprises will lose an important reference. a policy rule can make matters worse if economic agents have drawn up longterm plans on a faulty basis. the fiscal rule for the budget states that the government can use 4 per cent of the fund over time. this year, around 6 per cent of the fund is being used. the deviation partly reflects an unexpected shortfall in tax revenues from the non - oil economy in recent years. the government budget deficit is the difference between total revenues and total expenditure. they each account for about half of total gdp in norway. even small deviations from expenditure and revenue projections can have a major impact on the

deficit. exchange rate changes will also lead to fluctuations in the value of the petroleum fund. for these reasons alone, the use of petroleum revenues may in periods deviate from the 4 per cent rule. spending was also increased in response to the economic downturn in 2003. we can therefore safely affirm that the fiscal rule has been normative for fiscal policy. nevertheless, over the last years more oil money has flowed into the norwegian economy than earlier. petroleum investment shows a pronounced increase this year. moreover, government petroleum revenue spending has increased in recent years. the fiscal rule is part of a set of economic policy guidelines. the various components of economic policy have varying effects. this is why they have different functions : • monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. • the central government budget – growth in public spending – influences the krone and the size of the internationally exposed business sector in the medium term. government expenditure and revenues must be in balance in the long term. • wage formation, the structure of the economy and incentives determine how efficiently we use our labour resources and other economic resources. there is also an interaction. to give you an example : • in its budget resolutions, the government authorities will attach importance to the effects of the budget on the norwegian economy and will therefore take account of interest rate effects. in this way, they avoid a situation where growth in public spending and the interest rate push the economy in different directions. norway ’ s history as an oil nation goes back to the end of the 1960s. at the beginning of the oil age in norway, the relationship between the use of petroleum revenues and changes in industry structure was highlighted. however, since then, competitiveness in the business sector in norway has deteriorated both due to high wage growth and in later years an appreciation of the krone against our trading partners. costs rose sharply from the mid - 1960s to the mid - 1970s. in subsequent years, costs have varied around this higher level. so far this year, competitiveness in norway ’ s manufacturing industry has been about 5. 5 per cent weaker than the average for the period 1970 - 2004. over the past 30 years, manufacturing has been scaled back in waves. a substantial decline occurred in the period 1977 to 1984 and from 1987 to 1992. the last wave occurred around the turn of the millennium. manufacturing employment decreased by close to 55 000 persons from 1998 to 2004. there are many studies in international literature2