Chapter 1 International economy

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Executive Board August 2003

Chapter 1 International economy

Sources: Consensus Forecasts and Norges Bank

1.1 GDP forecasts for 2003 and the forecast spread

Percentage change on previous year. Spread in CF forecasts shaded¹⁾

0 1 2 3 4 5

Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 0 1 2 3 4 5 Consensus Forecasts Norges Bank

-3 -2 -1 0 1 2 3 4

Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 -3 -2 -1 0 1 2 3 4 Consensus Forecasts Norges Bank

-3 -2 -1 0 1 2 3 4

Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 -3 -2 -1 0 1 2 3 4

US

Japan

Japan Euro area US

1) 2*standard deviation

0 1 2 3 4 5

Euro area

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1.2 GDP forecasts for 2004 and the forecast spread

1 2 3 4 5 6

Jan 03 Mar 03 May 03 Jul 03

1 2 3 4 5 6 Consensus Forecasts Norges Bank

-3 -2 -1 0 1 2 3 4

-3 -2 -1 0 1 2 3 4 Consensus Forecasts Norges Bank

-1 0 1 2 3 4 5

US

Japan

Japan Euro area US

1)2*standard deviation

0 1 2 3 4 5

Euro area

1.3 GDP growth

Seasonally adjusted volume growth on previous quarter. Per cent

-1 -0.5 0 0.5 1 1.5

01 Q4 02 Q1 02 Q2 02 Q3 02 Q4 03 Q1 03 Q2 -1 -0.5 0 0.5 1 1.5

Euro area US

Sweden UK

Japan 25 trading partners

Sources: EcoWin / US Department of Commerce, SCB, National statistics, EUR-OP / EUROSTAT, Economic and Social Research Institute (ESRI) and Norges Bank

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1.4 CPI forecasts for 2003 and the forecast spread

0 1 2 3 4 5

-3 -2 -1 0 1 2

Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 -3 -2 -1 0 1 2 Consensus Forecasts Norges Bank

-3 -2 -1 0 1 2 3 4

Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 -3 -2 -1 0 1 2 3 4

US

Japan

Japan Euro area US

0 1 2 3 4

Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 0 1 2 3 4 Consensus Forecasts Norges Bank

Euro area

1.5 CPI forecasts for 2004 and the forecast spread

0 1 2 3 4 5

-3 -2 -1 0 1 2

-3 -2 -1 0 1 2 Consensus Forecasts Norges Bank

-3 -2 -1 0 1 2 3 4

US

Japan

Japan Euro area US

0 1 2 3 4

0 1 2 3 4 Consensus Forecasts Norges Bank

Euro area

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1.6a Interest rate expectations in the US

Actual developments and expected key rate

0 2 4 6

1999 2000 2001 2002 2003 2004

0 2 4 6 1 July 02 Key rate

24 Oct 02

19 June 03

Sources: Bloomberg and Norges Bank

11 Aug 03

1.6b Interest rate expectations in the euro area

Actual developments and expected key rate

0 2 4 6

1999 2000 2001 2002 2003 2004

0 2 4 6 Key rate

Sources: Bloomberg and Norges Bank

1 July 02 24 Oct 02

19 June 03 11 Aug 03

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1.7 Key rates and expected change in selected countries

Sources: Reuters, Bloomberg and Norges Bank ¹⁾Not adjusted for any maturity premium n.a.

n.a.

None -0.5

0.00-0.75 Switzerland

3 2 ½

-0.25 0.25

3.00 Canada

5 4 ¾

None 0

4.75 Australia

n.a.

None -0.5

5.3 Iceland

3 ½ 2 ½

-0.25 -1.00

2.75 Sweden

2 ¾ 2

None -0.75

2.00 Denmark

4 ¼ 3 ½

-0.25 -0.50

3.50 UK

2 ½ 2

None -0.75

2,0 Euro area

4 ¾ 0 1

Expected level in 3 months 12 months¹⁾

(DEC.03) (SEP.04)

5 ½ -0.25

0.75 5.00

New Zealand

0 None

0 Towards zero Japan

2 -0.25

-0.25 1.00

US

Change since Executive Board meeting 25.06.03 Change

since 01.01.03 Key rate

2 3 4 5 6 7 8 9 10 11 12

97 98 99 00 01 02 03 2 3 4 5 6 7 8 9 10 11 12

1.8 Unemployment and employment

Seasonally adjusted. Monthly figures

118 122 126 130 134

97 98 99 00 01 02 03 36 37 38 39 40

Sources: EcoWin / National statistics US Japan

Euro area

a. Unemployment as a share of the labour force

US (left- hand scale)

Germany (right- hand scale) b. Employment in millions

Germany UK

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1.9 Industrial output in the US, Japan and the euro area

Percentage change on 3 months earlier. 3-month moving average.

Seasonally adjusted. Volume

-5 -4 -3 -2 -1 0 1 2 3 4

1997 1998 1999 2000 2001 2002 2003

-5 -4 -3 -2 -1 0 1 2 3 4

Sources: EcoWin / Fed. Reserve Board, Min. of Economy,Trade and Ind. and EUR-OP / EUROSTAT

US

Japan Euro area

1.10 PMI industry for the US, the euro area, Germany, Sweden and the UK

35 40 45 50 55 60 65

1998 1999 2000 2001 2002 2003

35 40 45 50 55 60 65

Sources: EcoWin / Institute for Supply Management, NTC Research Ltd and Swedbank / I&L Euro area

Germany

UK

Sweden

US

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1.11 PMI services for the US

¹⁾

, the euro area, Germany and the UK

40 45 50 55 60 65 70

1998 1999 2000 2001 2002

40 45 50 55 60 65 70

Sources: EcoWin / Institute for Supply Management and NTC Research Ltd Euro area

Germany UK

US

1) ISM, Non-manufacturing

1.12 Reform work in Europe

• Different working hours in eastern and western Germany maintained

• Labour market reforms in Germany

• Tax cuts in Germany from 1 January 2004

• Agreement on health reforms in Germany

• Pension reform adopted in France

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1.13 Consumer confidence indicators in the US, Germany, France, the euro area and the UK

Seasonally adjusted diffusion index. Monthly figures

0 25 50 75 100 125 150

1998 1999 2000 2001 2002 2003

-32 -22 -12 -2 8 18 28

Sources: EcoWin / EU Commission and the Conference Board Euro area

(right-hand scale) US (left-hand

scale) Germany (right- hand scale)

UK (right-hand scale)

France (right- hand scale)

1.14 Retail trade

in the US¹⁾, the euro area, Germany and the UK

Percentage change on same month previous year. 3-month moving average.

Seasonally adjusted. Volume

-4 -2 0 2 4 6 8 10

1998 1999 2000 2001 2002 2003

-4 -2 0 2 4 6 8 10

Sources: EcoWin / US Dept. of Commerce, Deutsche Bundesbank, Office of National Stat. and ECB Germany

Euro area UK

US

1)Retail trade in the US is a deflated value index

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1.15 Global trade indicator

Sum of exports and imports in the US, Japan and Germany, in USD.

Seasonally adjusted. Monthly figures. Annual change. Per cent

-20 -15 -10 -5 0 5 10 15 20 25

1996 1997 1998 1999 2000 2001 2002 2003

Sources: EcoWin / US Dept. of Commerce, Japanese Ministry of Finance and Deutsche Bundesbank

The US

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1.16 Quarterly change in US GDP

Annualised contribution to growth in volume. Per cent. Seasonally adjusted

-6 -3 0 3 6 9 12

2001 2002 2003

-6 -3 0 3 6 9 12 Private consumption Private investment

Inventories Net export

Public cons. and investment GDP

Sources: Bureau of Economic Analysis

1.17 Private consumption - US

• Tax cuts will prompt consumption, but

- Saving ratio remains low

- Employment trend remains weak

- Higher interest rate curbs refinancing of home mortgages

In sum: difficult to see strong growth in consumption

without new growth in employment and/or real wages

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Sources: EcoWin / Mortgage Bankers Association of America and Federal Reserve / FHLMC

1.18 US: Interest rate on and applications for home mortgages

Index applications for loans, Week 1 1990 = 100. Seasonally adjusted.

Weekly figures

0 400 800 1200 1600 2000 2400

1990 1992 1994 1996 1998 2000 2002

5 6 7 8 9 10 11

1

Applications for home mortgages (left-hand scale)

30-year home mortgage rates (right-hand scale)

1.19 Public demand - US

• Tax cuts and transfers are prioritised when the Federal Deficit is increased

• Strong defence demand, otherwise fall in second quarter

• States are having problems and cutting their demand In sum: Difficult to see strong growth in public demand

(but we know little about military expenses)

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1.20 US - inventories as a share of monthly sales

1.3 1.4 1.5 1.6

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1.3 1.4 1.5 1.6

Source: EcoWin / US Department of Commerce

-35 -25 -15 -5 5 15 25

Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 -35 -25 -15 -5 5 15 25 Equipment and software

Structures

1.21 US - private investment in structures

¹⁾

and in equipment and software

Percentage change on previous quarter, annualised. Seasonally adjusted

Source: EcoWin/US Department of Commerce

1) Excluding residential

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1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6

51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 -20 -15 -10 -5 0 5 10 15 20 25

1.22 US - private fixed investment excl. homes

¹⁾

and the ratio between corporate

²⁾

investment

³⁾

and depreciation

Seasonally adjusted Quarterly figures

Source: EcoWin/US Department of Commerce and Datastream / Federal Reserve

Private fixed investm.excl.

houses (right-hand scale)

Investment / Depreciation (left-hand scale)

1) Percentage rise on same quarter previous year ²⁾Non-financial enterpr. excl. agriculture ³⁾Fixed investm. and inventories

Source: EcoWin/US Bureau of the Census

1.23 US - New orders in manufacturing

¹⁾

In billions of USD. Current prices. Seasonally adjusted. Monthly figures

100 150 200 250 300 350 400

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 100 150 200 250 300 350 400

1) Excluding semi-conductors

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70 72 74 76 78 80 82 84 86

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 70 72 74 76 78 80 82 84 86

Sources: Datastream / Federal Reserve Board and NBER

Average 1980-2002

1.24 US - Capacity utilisation in manufacturing, mining and power supply.

Per cent of capacity. Seasonally

adjusted. Monthly figures

The inflation outlook

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-4 -2 0 2 4 6 8

97 98 99 00 01 02 03

0 1 2 3 4 5 6 7

97 98 99 00 01 02 03

Wage growth

Percentage change on same quarter previous year

Sources: EcoWin / National statistics

US¹⁾

Euro area, whole economy UK, whole economy

Labour productivity, manufacturing

Percentage change on same quarter previous year

US UK

Euro area

1.25

1)Private sector excl. agriculture

1.26 Oil and international commodity prices

Trading partner currencies and USD

.

1997=100. Weekly figures

Brent Blend Commodities

Sources: EcoWin, Norges Bank and The Economist 0

50 100 150 200 250

97 98 99 00 01 02 03

60 70 80 90 100 110 120

97 98 99 00 01 02 03 USD

Trading partner curr. (I44 countries)

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1.27 Producer prices

25 trading partners

.

Percentage change on same month previous year

-3 -2 -1 0 1 2 3 4 5

1997 1998 1999 2000 2001 2002 2003

Sources: EcoWin and Norges Bank

-0.8 -0.4 0 0.4 0.8

Jan 02 May 02 Sep 02 Jan 03 May 03

PPI m/m

1.28 Consumer prices in the US, the euro area and the UK

Percentage change on same month previous year

0 1 2 3 4

1997 1998 1999 2000 2001 2002 2003

0 1 2 3 4

Sources: Bureau of Labor Statistics, Eurostat and Office for National Statistics UK

US

Euro area US, Fed target variable,

PCE deflator

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Oil

1.29 Oil price Brent Blend

USD per barrel.

Daily figures

0 10 20 30 40

1999 2000 2001 2002 2003 2004 2005 0

10 20 30 40

Sources: Norges Bank, Telerate and IPE

Futures prices 8 August

Assumption IR 2/03

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1.30 OPEC 10 output and quotas

20 22 24 26 28 30

1997 1998 1999 2000 2001 2002 2003

20 22 24 26 28 30

Sources: Bloomberg, International Energy Agency and Norges Bank OPEC's quota OPEC output

In million barrels per day

1.31 Oil production in Iraq, Venezuela and Nigeria

In million barrels per day. Monthly figures

0 1 2 3 4

Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03

0 1 2 3 4

Sources: Energy Information Agency and International Energy Agency Iraq

Venezuela Nigeria

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1.32 US commercial crude oil stocks

In million barrels. Weekly figures

260 280 300 320 340 360

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

260 280 300 320 340 360

800 850 900 950

1999 2000 2001 2002 2003

Source: US Department of Energy

2003 Highest and lowest values

in the last five years

Including strategic reserves

Source: US Department of Energy

1.33 Stocks of refined products in the US

In million barrels. Weekly figures

550 600 650 700 750 800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 550 600 650 700 750 800

2003 Highest and lowest values in the last five years

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Source: International Energy Agency

1.34 Stocks of crude oil in the OECD

In million barrels. Monthly figures

750 800 850 900 950 1000 1050

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 750 800 850 900 950 1000 1050

2003

Highest and lowest values in the last five years

Source: International Energy Agency

1.35 Stocks of refined products in the OECD

In million barrels. Monthly figures

1400 1500 1600 1700 1800 1900

Jan Feb Mar Apr mai Jun Jul Aug Sep Okt Nov Des 1400 1500 1600 1700 1800 1900

2003 Highest and lowest values

in the last five years

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1.36 OPEC's reference price with price band

USD per barrel. Daily figures

10 15 20 25 30 35 40

Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 10 15 20 25 30 35 40

Source: EcoWin