. increased possibilities for relocating production abroad may have weakened labour ’ s bargaining power and moderated pay demands. during the current upturn, we have also seen that the rise in prices for domestically produced goods and services has been lower than implied by historical relationships between inflation and wage and productivity growth. increased competition in product markets may have dampened the rise in prices. in a survey from norges bank ’ s regional network 58 per cent of the companies responded that competition has increased in the past 2 - 3 years, while only 15 per cent reported that competition has decreased. in retail trade and services, almost 70 per cent responded that competition has intensified. many of the companies that experience increased competition attribute this to the entry of more operators, including foreign operators, into the market. the norwegian business sector has been quick to integrate information technology. this applies both to companies competing on international markets and those supplying goods and services to the domestic market. in comparison with other countries, it is particularly productivity gains in banks and other service sectors that stand out. examples are automated processes and swifter payments in the financial industry and improved inventory and management systems in commerce and transport. in sum, these positive supply side shocks have increased the growth capacity of the norwegian economy, and have played their part in keeping inflation at a low level. monetary policy assessments monetary policy influences the economy with a lag. norges bank sets the interest rate with a view to stabilising inflation close to the target in the medium term. the interest rate path should provide a reasonable balance between the path for inflation and the path for capacity utilisation. when we reduced the interest rate in 2003, demand and output rapidly picked up. however, it took a long time for employment to rise and the next phase from a pick - up in employment to a fall in unemployment was also long. but now the upturn has entered into a mature phase. the enterprises in our regional network report that capacity constraints are now limiting further growth. unemployment has fallen markedly over the past year. wage growth appears to be rising, but so far only gradually. prices for many inputs and services and building materials are rising markedly. consumer price inflation is also expected to pick up further ahead. thus, interest rates are rising. the experience of previous business cycles has shown that wage and price inflation may increase markedly in a late phase of the upturn. higher interest rates will counter such a development. however, we must also prevent inflation from becoming entrenched well below 2.

europe, the introduction of gdp weights as the basis for asset allocation, and increased risk premiums of certain bonds have all contributed to our present positions. during the past year, the fund has reduced its exposure to some european government bonds, most notably italian and spanish bonds. slide 15 : risk has many facets credit risk is not the only risk attracting attention in portfolio management. it is our view that unequal treatment of investors during the restructuring of greek government debt in march this year, contributed to increase european risk premiums. we are happy to notice that president draghi has underscored that investors would now face equal terms related to the outright monetary transaction programme, as announced by the ecb. draghi pointed out another risk factor in july, when he stated that risk premiums are not only linked to default or liquidity, “ but they also have to do more and more with convertibility ”. 2 president draghi emphasised that this kind of risk is unacceptable. i believe the ecb has taken the relevant measures to eliminate such risks. financial investors are risk - averse. they react to signals, expectations about the future and real adjustments. no doubt some european countries have a long and bumpy road ahead of them, before they get their government deficits and debt under control. my message is that positive steps have been made. as a consequence of the measures taken by the ecb, as well as initiatives taken by the european union and by member states themselves, risk premiums have recently come down. if measures are carried out as intended, it is quite likely that global investors will again allocate the relevant part of their asset portfolios to european government bonds. final remarks let me return to an overall macroeconomic perspective : to factors decisive for sustainable growth. the existence of a large, broad - based business sector that is exposed to international competition and trade promotes learning and development. this is true for any country. in countries with abundant natural resources, the exposed sector may easily be scaled back, while sheltered sectors expand. while other economies have been spared having to deal with the curse of cheap credit, us households and european sovereigns have, over the last decade, largely the same story to tell. easy money is bad for you. speech by mario draghi at the global investment conference in london, http : / / www. ecb. int / press / key / date / 2012 / html / sp120726. en. html bis central bankers ’ speeches