Uncertainty and psychological factors among industrial leaders

Norway's industrial leaders view the prospects for first quarter 1999 as more uncertain than they have been for a long time. Export trends, a softening of the home markets, and uncertainty about national and international developments in the coming quarters, are some of the factors they emphasized. Psychological factors appear to be affecting the industrial leaders' evaluations.

The leaders' general assessment of the prospects for first quarter 1999 indicate that short-term uncertainty was evaluated as much greater than it has been for a very long time. In fourth quarter 1998 the business tendency survey "optimism indicator", which tracks the leaders' general assessment of the prospects for the coming quarter, fell to its lowest level since 1978. The indicator has been virtually in free fall throughout 1998 for several reasons.

Continued lacklustre international markets is one factor that has an obvious impact on the overall assessment. Tendencies to softer domestic markets as a result of weaker demand and higher import competition are another important factor. There is furthermore all reason to assume that changes on the macro level such as exchange and interest rates through the second half of last year and continued uncertainty associated with these factors have had an impact on the evaluation of cost developments and profitability. There are several factors in the economy indicating that the current economic upswing is in a mature phase. Nevertheless, an evaluation of significant factors provides little support for the highly negative reaction expressed in the optimism indicator for first quarter 1999. There is therefore reason to assume that psychological factors are also affecting the leaders' overall evaluation.

Production

The industrial leaders assessed production as having shown a moderate increase in the fourth quarter, about as predicted one quarter earlier. Growth, however, was considered to be noticeably weaker than during the same time last year, with sectors of traditional export industries and offshore-related industries providing the bright spots. The level of activity was also high for intermediate goods-producing industries (including traditional export industries) in the fourth quarter. Production and capacity utilization continue to grow, although the trend in past months has clearly been one of decline. A high level of activity in combination with weaker international markets has gradually led to a build up of inventories, particularly in export-oriented industries.

New orders and demand

New orders in the fourth quarter were noticeably lower than expected in many sectors. Demand for traditional export industry products such as pulp and paper, basic chemicals and metals has fallen off in recent quarters in the wake of falling international prices and greater competition in the domestic and export markets. New orders from the domestic market were also down in the fourth quarter and were noticeably weaker than expected.

Capacity and signs of pressure

The manufacturing industry's utilization of capacity fell in the fourth quarter to just over 81 per cent. This is somewhat lower compared with the previous quarter and clearly lower than the same time last year. Here too, the downward trend has become more clear over the past few quarters. Developments on the demand side together with greater competition from imports have helped curb signs of pressure somewhat in the past few quarters.

New Statistics
Business tendency survey, 4th quarter 1998.
The statistics are published quarterly in the Weekly Bulletin of Statistics. For more information contact: Tom.Langer.Andersen@ssb.no, tel.+47 21 09 47 29.

Weekly Bulletin issue no. 5, 1999