With the lifting of pandemic-related restrictions in China and lower energy prices, activity among trading partners will likely be higher than we had anticipated earlier. High inflation has prompted central banks in many countries to raise policy rates to the highest levels since the 2008 financial crisis. Over the past year, foreign interest rates have risen more than Norwegian rates. Combined with the turbulence in financial markets, this has probably contributed to the depreciation of the krone. The krone is now considerably weaker than we envisaged in December. A weaker krone means an increase in prices for imported goods and services in krone terms. This will contribute to sustaining inflation in Norway. Figure 5. High employment Activity in the Norwegian economy has been higher than expected. Employment is high and unemployment is low. At the same time, we have seen an increase in labour force participation, which is a welcome development. Growth in the economy will likely be weaker ahead, but the slowdown appears to be less pronounced than projected in December. The enterprises in our regional network report slightly better prospects than before Christmas, but there are wide variations across industries. In the secondary housing market, prices have risen somewhat in recent months, but the number of homes for sale is quite high. New home sales are very low. We expect a modest decline in house prices ahead as a result of higher interest rates.

More importantly, this has moved beyond negative screening, to more impactful approaches involving the adoption of environmental, social and corporate governance (ESG) considerations in investment and business practices. These have served to align risk and reward in a more sustainable manner. Indeed, some global banks and insurers have begun to incorporate sustainability considerations, including environmental concerns in their lending and investment decision-making processes via the adoption of international risk management frameworks such as the Equator Principles and the UNEPFI Principles for Sustainable Insurance. These positive forms of finance are increasingly becoming powerful market forces, driving focus into the kind of productive activities needed for long-term growth. BIS central bankers’ speeches  1  Islamic finance, a well-established component of responsible finance, is similarly gaining significant growth and prominence in the global financial system due to its inherent orientation towards promoting societal welfare. This includes the propagation of strong ethical values that engenders accountability and trust in its intermediation function, as well as the promotion of risk sharing that fosters entrepreneurship and equitable distribution of wealth. By virtue of its requirement for financial transactions to be supported by genuine productive activities, Islamic finance is also deeply rooted to the real economy. All these are hallmarks of Islamic finance that underpin greater market discipline and stronger focus towards building sustainable and long term value in capital allocation. Collectively, these characteristics enable Islamic finance to also serve as an effective model for responsible finance.