2019, although business fixed investment is likely to decelerate - - mainly reflecting cyclical adjustments in capital stock as well as olympic games - related demand peaking out - - and household spending is likely to decline in the second half of the fiscal year due to the effects of the scheduled consumption tax hike, japan's economy is expected to continue expanding, supported in part by the increase in exports led by external demand. according to the bank's january 2018 outlook for economic activity and prices ( hereafter the outlook report ), the medians of the policy board members'forecasts of the real gdp growth rate are 1. 9 percent for fiscal 2017, 1. 4 percent for fiscal 2018, and 0. 7 percent for fiscal 2019 ( chart 8 ). c. current situation and outlook of prices turning to price developments, the year - on - year rate of change in the consumer price index ( cpi ) for all items less fresh food is currently 0. 9 percent. the rate has been on an improving trend, although gradual, since january 2017, when it started to increase. during the 12 months since then, the rate rose by more than 1 percentage point ( chart 9 ). i believe that there are three factors to consider when projecting the outlook for prices. the first is the output gap, which determines future inflation rates. the output gap has widened steadily within positive territory on the back of the steady tightening of labor market conditions and a rise in capital utilization rates ( chart 10 ). in this situation, firms'moves to raise their employees'wages and prices have started to be seen. furthermore, upward pressure on prices is heightening steadily. specifically, labor market conditions have been tightening further in a wide range of industries - - as evidenced by the medical and nursing service industry, for example, where labor shortage has become more severe amid an increase in job openings resulting from large firms entering the market - - and hourly cash earnings of part - time employees in particular have started to increase. against this backdrop, in the service industry, such as dining - out and transportation, some firms have started to raise prices since the second half of 2017 by passing a rise in labor costs - - arising from labor shortage - - on to prices. the second factor is medium - to long - term inflation expectations, which are more or less unchanged, after having remained in a weakening phase since summer 2015 ( chart 11 ). going forward, with the improvement in the output gap, firms'stance is likely

seven trading partners. source : refinitiv datastream a prevailing view over the past decades has been that fiscal policy should follow simple, robust rules and should to a limited extent be used actively to stabilise the economy. globally, there are now signs that this view is changing. the pandemic may mark a turning point. in the period ahead, we are likely to see a more active fiscal policy among many of norway ’ s trading partners. there are several reasons for this. for one thing, there is a recognition that the room for manoeuvre in monetary policy is limited. after the financial crisis, a number of central banks have assumed considerable responsibility for sustaining activity and smoothing economic fluctuations. at the beginning of last year, policy rates were therefore already at very low levels ( chart 7 ). at the same time, low policy rates reflect long - term trends, such as an ageing population, a high willingness to save, greater inequality and declining productivity growth. the result is that the level of what we refer to as the neutral interest rate is lower than before, even when economic conditions are in balance. the room for policy rate reductions in downturns is therefore smaller. the change in the view of fiscal policy ’ s role also reflects the growing focus on structural challenges : economic inequality, a shift towards a greener economy and the need for investment in digital infrastructure. in the new us administration, we find this policy expressed by the motto “ build back better ”. in the euro area, the policy has been labelled the “ european green deal ”. norges bank chart 8 debt grows in response to each crisis advanced economy public debt as a share of gdp. 1 ) percent pandemic financial crisis and euro crisis international currency crisis dotcom bubble economic perspectives 18 february 2021 1 ) projections for 2020 and 2021. source : imf if government spending increases, there is one concern that arises. an amount borrowed today becomes a debt that must be repaid tomorrow. experience from the past 40 years shows that while public debt grows during crises, it does not shrink when economic conditions normalise ( chart 8 ). during the financial crisis, governments in many advanced economies borrowed on a large scale. much of this debt was still outstanding at the beginning of 2020. during the pandemic, borrowing needs have again been substantial. public debt has ballooned to new heights. persistently low interest rates mean that government borrowing appears to be on favourable terms. but at some point further ahead