‘The Finnish economy is at a standstill. The economic outlook has clearly deteriorated in recent months,’ Governor Erkki Liikanen commented today at the unveiling of the Bank of Finland’s latest economic forecast. The outlook is overshadowed by lacklustre growth in the global economy, continued fragility in confidence and the ongoing sovereign debt crisis. The GDP growth forecast for 2012 is 0.3%, with growth in 2013 almost as weak, at 0.4%. The estimate for 2014 is for 1.5% growth.
The slowdown in economic growth is broadly based. In the immediate years ahead, domestic demand will no longer sustain growth, while exports will continue to perform weakly. Growth in Finland’s export markets will pick up only slowly, and export competitiveness has declined. ‘Export prices have fallen relative to import prices. The deterioration in the terms of trade has reduced any room for manoeuvre in pay talks. The coming round of pay agreements must be tailored according to the competitiveness of the open sector,’ Governor Liikanen stressed.
The slowdown in growth is also reflected on the labour market. The unemployment rate is forecast to peak at 8.4% in 2013. Unemployment growth will, however, be held in check somewhat by population ageing.
Inflation is forecast to slow gradually, due to sluggish growth in consumer demand and a fall in energy prices. It will, however, remain relatively brisk, at 2.4% in 2013, due to increases in indirect taxation.
Important decisions were taken in spring 2012, particularly in regard to restoring balance in central government finances, but also with an eye to extending the duration of working life. ‘The economy is, however, performing more weakly than expected in the spring, and this casts a shadow over the outlook for the public finances. Therefore, according to the Bank of Finland forecast, the objective set out by the Government of turning the trend in the debt ratio of central government downwards by the end of the current parliamentary term will not be achieved without additional measures,’ Governor Liikanen continued.
‘With early measures, the public finances can still be strengthened in a controlled way. If the measures are postponed too far, the pressure for sudden and hasty policy action will grow considerably,’ Governor Liikanen emphasised. The long-term sustainability of the public finances cannot be secured without structural measures, including steps to increase the supply of labour.
In addition to the forecast and stability articles, Euro & talous 5/2012 also contains the following feature articles:
Kinnunen, Mäki-Fränti and Viertola: Suomen julkisen talouden kestävyystarkasteluja (‘Fiscal sustainability projections for Finland’)
Kajanoja: Suomen kilpailukyky ja sen mittaaminen (‘Finland’s competitiveness and its measurement’)