Second, economic transformation in response to climate change, as a result of an adaptation and mitigation process, will also require the financial sector to adapt, by managing risk and by exploring opportunities for business. Third, being a prominent sector in the economy, the financial system can also be an agent of change, supporting the adaptation and mitigation process, through its influence on financial resource allocation, through developing supportive financial services, markets, and products, as well as engaging climate change in its own business agenda. Let me elaborate in more details on each of these points, starting with the macro impact and implications for the financial system. Conventional wisdom at this time is that the macroeconomic impact from climate change can be large, but uncertain. For example, estimates from three benchmark studies, as cited by the IMF, point to a mean GDP loss of about 0-3 percent of global GDP for a 3oC warming. In Asia, South and Southeast Asia are to be amongst the regions most likely to experience the most negative effects. Such macro-impact is tantamount to a supply shock on the country’s long-term productive capacity i.e. capital stock and technology, leading to a decline in long-term output growth, higher production cost and inflation, shift in relative price away from carbon-based energy, and a decline in productivity. Some countries may suffer balance of payments problems if they are financially unable to cope with the impact.
Prices rose by around 3 per cent annually for a long period, but since 1995 they have been falling by about 6 per cent annually. This kink point coincides with the dismantling of the restrictions on textile trade and with a period of rationalisation in retail trade in Norway. The rapid growth of production in China, India and other newly integrated economies has led to a substantial rise in demand for oil and other raw materials. At the same time, increased trade has engendered higher demand for shipping services and favourable freight rates for a period. BIS Review 39/2006  1  These changes have provided Norway with increased revenues thanks to a remarkable strengthening of our terms of trade. Prices for imported goods are falling in relation to prices for goods we export. The impact of the rise in oil and gas prices is particularly strong, but the terms-of-trade gains on goods in the mainland economy have also been high. The situation in Norway differs from that of its Nordic neighbouring countries. Sales of Swedish and Finnish high-tech products are growing strongly in terms of volume, but prices are falling. Denmark has a diversified business sector, which is moving on a steady path overall. The high energy prices have contributed to increased cross-border capital flows as income is transferred from oil importers to oil exporters. Consequently, a savings surplus has been building up in oil exporting countries such as Norway.