Euro & talous 3/2000 published
Releases
Press release number 13
Wednesday 6 September 2000, 12:00 AM
World economy activity has also continued to expand at a robust pace and the outlook remains favourable. In the United States, real GDP grew more strongly than expected in the first part of the year. In the euro area, the rate of economic growth has picked up significantly. The prospects for a continuation of robust economic growth in Finland over the next few years are good, as was noted by the Bank in its spring forecast. However, Finland's rate of inflation has picked up markedly as a result of a rise in import prices, especially the oil price, but also because of domestic factors. There is a danger that, in conditions of strong domestic demand, the rate of increase in domestic costs will accelerate and that overall inflation will remain high.
As there is little scope for active countercyclical policy, it is essential that structural measures be taken to remove factors impeding the growth of the economy and employment and at the same time curb the increase in inflationary pressures. The tax cuts contained in the Government's budget proposal for 2001 will provide incentives to increase labour supply and are therefore justified from the standpoint of structural and employment policy. Maintenance of favourable developments in employment will require a further easing in the taxation of labour income in the years ahead. A multi-year programme for reducing taxation would clarify the situation in the labour market and lay the ground for stable economic growth in the longer term.
All means must be deployed under monetary union to avert economic overheating. Reflecting strong demand, prices in, for the example, the building industry have been rising faster than costs for some time now. There are signs of increased profit margins in other sectors as well. Overindebtedness is not yet a widespread problem among households, but the recent sharp fluctuations in asset prices and the rise in lending rates serve as a reminder of the dangers attached to running up debt. Wage pressures also seem to have increased, despite the fact that the proposed tax cuts alone will bring a fairly substantial increase in take-home pay. A weak euro and interest rates that are calibrated to economic conditions in the euro area as a whole have added to the risk of overheating in the Finnish economy. Thus the continuation of balanced economic growth is not self-evident. Since taxes are to be lowered without any offsetting reduction in spending in a situation where the outlook is for continued strong growth, this means that the fiscal stance is also becoming lax. Besides more stringent fiscal policy and moderate wage agreements, ensuring conditions conducive to balanced economic growth calls for structural reforms aimed at improving the functioning of the labour market and increasing the productive potential of the economy.
This issue of Euro & talous contains five other articles: Esko Ollila discusses the changing role of the International Monetary Fund; Pentti Forsman examines the importance of the electronic equipment industry for the Finnish economy; Risto Peltokangas writes about the investment of foreign reserves; Päivi Tissari assesses the experiences gained from implementation of the Eurosystem's monetary policy from the standpoint of the Bank of Finland; and Jussi Snellman describes changes in retail payments in Finland.