Page Content
"The 3% annual growth that the Finnish economy has experienced over the last few years is a fine achievement, when compared to the otherwise modest figures for the euro area as a whole. Economic growth has promoted employment while price stability in Finland has remained relatively steady, meaning that there has been a sharper growth in real income than had been forecast," says Governor Liikanen in the latest issue of the Bank of Finland journal Euro & talous.
In the most recent Euro & talous, the Bank of Finland forecasts continuing robust economic growth. The growth figures for this year and next show signs of being affected by the paper and pulp industry's dispute and the resulting loss of export business. Growth in Finnish GDP is expected to slow down, temporarily, to 1.6% in 2005 and to pick up strongly to just below 4% in 2006. In 2007, growth in GDP is forecast to slow to less than 3%. Growth prospects remain relatively unchanged, this year. The expected increase is based on strong domestic demand, although it is hindered by the growth in the share of imports in Finnish GDP.
According to the Harmonised Index of Consumer Prices (HICP), in 2006 inflation is expected to reach 1.6% for the year. Behind which is the sharp rise in the cost of energy. Also, the effect of the drop in taxation on alcohol will no longer be seen in the annual rate of change in the HICP which will, in turn, lift inflation figures. We forecast that, in 2007, Finland will experience a slight quickening in inflation.
Even though, in the short term, Finland's economic prospects are fairly favourable, the future does not look as certain. The continuing weakening in the country's terms of trade, the loss of market share in the export trade and the scarcity of planned investment are all challenges to Finland's income and growth prospects. Unfortunately, we do not foresee any change in these troubling trends. Indeed, according to Governor Liikanen, it is possible that due to minimal interest rates, low inflation levels and the recent period of stable income development, income expectations are not at a sustainable level. Progressively deepening structural problems indicate the current account surplus is being progressively eroded away. The cause of which is not high investment rates but rather low savings rates.
* * *
In addition to the economic forecast, the current issue of Euro & talous also contains articles on three other topics. Heli Pyykkö and Markus Bunders analyse the structure of Finland's cross-border trade, Juha Kilponen and Helvi Kinnunen write about population ageing and its affect general economic equilibrium and Samu Kurri evaluates changes in consumer prices.
Forecast tables