renewed growth in investment in a number of industries. imports have expanded markedly. potential growth in the norwegian economy is estimated to increase somewhat more than normal this year as a result of increased competition and rationalisation in many sectors. this will contribute to fairly high growth in the norwegian economy without the emergence of constraints on the supply of labour or productive capital. the high rate of growth in output nevertheless implies that the output gap will approach zero towards the end of 2004. the output gap is a measure of the difference between the actual level of output and potential output. developments in the output gap provide a basis for assessing cyclical developments and can thus shed light on domestic price and cost pressures in the economy. it is difficult to know how high capacity utilisation is at any given time. output and employment figures are often revised and do not therefore always present an accurate picture of the current economic situation. norges bank therefore also uses a number of other indicators to gauge the temperature of the norwegian economy. fiscal policy in 2004 appears to be somewhat more expansionary than assumed in the revised national budget. the government estimates that underlying nominal spending growth over the central government budget will be close to 11 per cent between 2003 and 2005. local government revenues are estimated to rise by slightly more than 11 per cent in nominal terms during the period. which is more than nominal growth in mainland gdp. employment has picked up. the number of persons employed in the second quarter of 2004 was 0. 2 per cent higher than in the same quarter of 2003. employment growth has mainly occurred in retail trade, commercial services, education and health and social services. manufacturing employment is still falling. companies often wait to increase employment until the recovery has gained a firm footing. compared with the recoveries in 1982 and 1991, employment growth in the current recovery has been weaker relative to output growth. the moderate increase in employment indicates that companies are still reaping the benefits of rationalisation measures. household demand is one of the most important driving forces in the norwegian economy. low interest rates, high growth in real wages and rising housing wealth are stimulating private consumption. consumption is projected to rise by about 5 per cent in 2004, then slow through the projection period as a result of lower growth in real disposable income. looking ahead, an increase in employment and a tighter labour market are expected to result in somewhat higher wage growth. for 2005, the government has proposed income tax reductions for households, but the effect on real disposable income will be

few decades. both are now at their highest levels for several centuries and, most probably, ever ( chart 10 ). bis central bankers ’ speeches for global trade, chart 11 compares trade flows across 70 countries constituting around 80 % of world exports at two dates – 1995 and 2013. the size of the nodes reflects the importance of a country to world trade and the thickness of the links the size of trade flows. it is clear that the wiring of the international trading systems has become considerably more dense and complex over this period, reflecting the deepening and lengthening of global value chains ( oecd ( 2013 ), de backer and miroudet ( 2014 ) ). this highly interconnected and complex set of global supply chains has the potential to propagate disturbances much more virulently than in the past, as two recent events illustrate. the first was the correlated collapse of world trade during the financial crisis. between 2008q1 and 2009q1, real world trade fell by almost 15 %. correlations between regional import volumes rose to close to unity at the height of the crisis ( chart 12 ). the strength and length of global supply chains caused a synchronous collapse in trade ( bems et al ( 2012 ) ). the second was the japanese earthquake and tsunami in 2011. because japan plays a central role in global supply chains as a producer of high - value intermediate goods, this had a cascading effect on global production. for example, as japanese car producers ceased production, their foreign affiliates were unable to compensate because they depending on inputs from japan ( oecd ( 2013 ) ). deepening global supply chains mean a large number of countries are now potential “ super - spreaders ” of global trade contagion. the story is similar, if on an even more dramatic scale, when it comes to global banking. chart 13 plots the network of cross - border bank lending flows across a wide range of countries, in 1980 and in 2007. as with trade, the wiring of the international banking network has become significantly more dense and complex ( minoiu and reyes ( 2013 ) ). 11 and as with domestic banking networks, there is a clear core - periphery pattern to the network, with a small number of nodal “ super - spreader ” banking sectors serving as international lenders to the periphery banks. the global financial crisis provided a telling illustration of the susceptibility of such a network to a weakening, or failure, of