is higher in norway than in most other oecd countries. this is a direct result of considerably higher nominal wage growth in norway. the phasing in of petroleum revenues increases the demand for labour from the public sector and from enterprises selling goods and services to households. with little slack in the economy, employment in the internationally exposed sector must decline. as competitiveness has deteriorated, manufacturing employment has been scaled back in waves. competitiveness deteriorated by around 10 per cent from 1994 to 2001. if wages in norway relative to other countries develop along the same lines as last year and the krone exchange rate remains at the present level to the end of the year, competitiveness will deteriorate further by around seven per cent. growth in public spending from last year to this year is estimated at seven per cent. this is considerably stronger than the growth in value - added in the private sector of the mainland economy, which is estimated at around four per cent. the guideline for fiscal policy has been followed closely. real growth in public consumption is estimated at 1½ per cent. in other words, growth in the production of public services will be moderate, even though public spending is rising sharply in nominal kroner terms because of the steep increase in the cost of producing public services. this reflects high wage growth in the public sector. there have also been substantial increases in transfers to the household sector in connection with our social security system. as a result, most of the strong growth in central government allocations translates into a sharp rise in household consumption, while growth in public service production remains moderate. this is only to be expected when there is steep increase in public sector allocations in an economy where there are no available resources. employment and labour force participation rates are high. the labour market is tight. unemployment remains low, with limited available resources. there will be slow growth in the labour force. working hours have been reduced by increasing the number of vacation days. in addition, outflows from the labour market have risen over the last few years as a result of early retirement and the use of disability pensions. strong wage growth generates demands for greater efficiency in both private enterprises and government agencies. strong wage growth may thereby increase the outflow of discouraged workers to various social security and pension schemes. all in all, we can expect an increase in the labour force of only 0. 3 - 0. 4 per cent in the years ahead. wage increases in this year ’ s settlement were high. wage settlements in

steps we've taken since last august to address the concerns covered in the cgfs report ( see summary table ). summary table other central banks have also been working towards the same goals. the cgfs report suggests that central bank actions in response to the market turbulence have been effective in that they have " reduced, though not resolved, " tensions in short - term money markets, thereby mitigating the damage to the economy. however, it has been much more difficult to address funding - market pressures in the broader sense, particularly in term, unsecured markets. the report notes that " the assessment of central banks about their ability to deal with such market pressures depends crucially on the pressures'origins : how much came from liquidity concerns, which are amenable to central bank actions, and how much from counterparty risk or other concerns, which are beyond the reach of central bank operations. overall, the judgment was that tensions would have been more acute and more damaging without the forceful interventions of central banks. " that does not mean that our work in dealing with the broad policy lessons from this period of financial turbulence is done. one important set of issues being studied is how fluctuations in the financial sector play out in the real economy, and how regulations and practices – including the regulation of financial institutions – can dampen or exacerbate these fluctuations. under the umbrella of the financial stability forum, various international committees have been looking at these important issues and are considering a variety of proposals. it is important to reduce procyclicality in the financial system – perhaps including the key aspects of leverage and liquidity – in order to reduce the magnitude of the effects of future financial disturbances. i'd like to turn now to the current state of the markets. the current state of the markets although credit conditions in canada remain challenging, they are better in many respects than those in other major markets. for example, short - term credit spreads, as measured by the spread between short - term lending rates and the expected overnight rate, have narrowed significantly in recent months ( chart 2 : spreads between 3 - month libor and ois ). in large part, the lower short - term credit spreads in canada reflect the healthier state of canadian financial institutions. this relative strength is also shown in the smaller decline in stock market valuations for canadian financial institutions relative to their foreign peers over the past 14 months ( chart 3 : performance of financial sector equities ). nevertheless, there