products, energy products, building materials, and machinery. we have also seen a rapid rise in the external value of the canadian dollar. this increase largely, though not entirely, reflects stronger global demand for canadian goods and services. against this backdrop, canadian manufacturers have been getting more efficient. indeed, we have seen a tremendous rebound in manufacturing productivity — output has increased even while the number of jobs has been reduced. this has been very difficult for many workers in the manufacturing sector who have lost jobs as a result of these changes. we all recognize this. but we must also recognize that this reflects, in part, the fact that many firms are taking advantage of the strong canadian dollar to invest in machinery and equipment in order to improve their productivity. these productivity gains bode well for the future — improved efficiency helps to improve our international competitiveness and our ability to adapt to shocks and to shifting trends in the global economy. indeed, we see businesses across the country working hard to adjust to an increasingly competitive environment. we have been tracking this adjustment through our regular communication with business groups, manufacturers, and exporters, as well as through the bank's business outlook surveys. you will find a copy of our spring business outlook survey in your package. our surveys have highlighted three areas that are posing problems for manufacturers — labour shortages, the appreciation of the canadian dollar, and competition from asia. let me say a few words about each of these areas. our surveys have shown that the key problem for some manufacturers, like firms in other sectors, has been a shortage of skilled labour. but despite the difficulty in attracting skilled labour, our most recent survey showed that hiring intentions remain strong across most sectors and all regions. many of the workers who will be hired to alleviate labour shortages in expanding sectors are those who are being released from sectors that are growing less rapidly. since 2003, when the canadian dollar began to appreciate, we have regularly asked businesses how they have been adjusting to the appreciation of the canadian dollar. roughly half of the firms surveyed say they have been adversely affected by the rise in the canadian dollar. most of these are firms that are highly exposed to international trade — including manufacturing. finally, many firms that we surveyed also say that they have felt the effects of increased competition from asia, in addition to significant increases in their input costs, particularly higher energy costs. in response to these three challenges, many firms have undertaken a profound restructuring of their businesses. indeed, some 80 per cent of manufacturers surveyed reported changing

spending as a share of the economy will remain approximately unchanged in the years ahead. this will entail lower growth in public demand than in recent years. at the same time, monetary policy continues to be expansionary. according to norges bank ’ s march 2017 forecast, the key policy rate will remain close to today ’ s level in the years ahead, followed by a gradual rise from 2019. chart : key policy rate and inflation ahead in 2016, the pace of consumer price inflation was at its highest for many years, driven to a great extent by the considerable depreciation of the krone up to the beginning of last year. inflation has slowed since last summer and our projections in the march monetary policy report indicate that inflation will slow further in the years ahead. at the same time, inflation expectations seem to be firmly anchored. the upturn in the real economy appears to have taken hold and unemployment has declined. with a key policy rate close to today ’ s level, there are prospects that inflation will pick up again further ahead. the ministry of finance is currently assessing the need to modernise the regulation on monetary policy. after more than fifteen years, this is a natural step. based on our experience over this period, it is norges bank ’ s assessment that the monetary policy framework has worked well. inflation has been predominantly low and stable since inflation targeting was introduced in 2001. average annual consumer price inflation has been close to, albeit somewhat below, 2. 5 percent. at the same time, employment has consistently been more stable since 2001 than in previous periods, in spite of the fact that the norwegian economy has been exposed to substantial shocks. chart : inflation the inflation target has anchored inflation expectations. at the same time, there has been sufficient room for flexibility and the exercise of judgement to enable monetary policy to dampen the impact on output and employment when the economy has been exposed to shocks. our experience has shown us the crucial importance of flexibility in inflation targeting to enable us to make the appropriate trade - offs in response to these shocks. the time horizon for achieving the target must be sufficiently long, and the balance of risks, including risks related to 3 / 4 bis central bankers'speeches financial stability, must be taken into account. we have also experienced the important role the exchange rate has played as shock absorber, particularly during the financial crisis and in periods of falling oil prices. at the same time, the interest rate level abroad places limitations on the room for manoeuvre in monetary