The global economic recovery has continued. The economic outlook nevertheless contains uncertainties from potential changes in the international political arena. ‘Protectionist views have been raised at the same time as there is a great need for international cooperation to resolve climate, refugee and economic challenges,’ said Bank of Finland Governor Erkki Liikanen today at the release of the latest issue of the Bank of Finland Bulletin.
The economic expansion in the euro area is expected to proceed at a moderate but firming pace. The risks surrounding the euro area growth outlook remain tilted to the downside, and inflationary pressures continue to be subdued. The ECB Governing Council decided in December 2016 to continue the expanded asset purchase programme (EAPP) until the end of 2017, or beyond if necessary, until the pace of inflation is sustainably restored in line with the price stability objective. Purchases to the value of EUR 80 billion per month will continue until March 2017. Thereafter they will continue at a monthly pace of EUR 60 billion. ‘The very substantial amount of monetary support is preserved in the euro area. Favourable financing conditions are important for price stability and economic recovery,’ Governor Liikanen continued.
ECB monetary policy has also supported growth in Finland. Economic growth in the euro area improves Finnish companies’ opportunities to increase exports to other euro area countries. In addition, financing costs have decreased in Finland owing to an efficient transmission of monetary policy, and interest rates on household and corporate loans are low. This has served to bolster consumption and investment.
The Finnish economy is recovering. Growth has been largely dependent on households’ consumption and housing investments but is forecast to gradually become more broadly based. Exports will gradually recover as growth continues in Finland’s export markets and Finland’s own cost-competitiveness improves.
It is important to strengthen the underpinnings of growth by continuing structural reforms and securing a favourable operating environment for business. Labour productivity growth is often faster in young companies than in more established ones. On the other hand, the most important source of productivity growth across the economy as a whole is a gradual renewal in established companies. Meanwhile, a substantial proportion of new jobs are emerging among new and rapidly growing companies.
Companies that will grow rapidly are hard to identify in advance, and rapid growth that has already occurred cannot necessarily anticipate a continuation of the same trend. It is the role of economic policy to create equal opportunities for different types of companies. ‘When the economy is able to renew itself by improving productivity and generating jobs, this will boost economic growth and the outlook for the public finances. It will also reduce the risk of increased marginalisation and lack of opportunities,’ Governor Liikanen underlined.
Forecast for the Finnish economy will be published in English later in December or in early January at www.bofbulletin.fi.