The performance of the Finnish economy in recent months has been more muted than expected and consumer confidence has weakened again. On the euro area financial markets, however, sentiment has improved. The European Central Bank has kept its monetary policy stance accommodative by lowering its key policy rate to 0.5%. ‘The Governing Council of the ECB will continue monitoring all incoming data very closely and stands ready to act,’ said Bank of Finland Governor Erkki Liikanen at today’s briefing for the press.
In the new issue of the Bank of Finland journal Euro & talous published today, Finland’s GDP is forecast to decline by 0.8% in 2013, returning to slow growth of 0.7% in 2014. Private consumption will no longer support growth to the same extent as before, with consumer purchasing power and employment both declining. Economic growth will accelerate to 1.4% only in 2015 as exports and investment begin to recover.
Exports have contracted due to industrial restructuring, a sluggish international economy and a deterioration in Finland’s cost-competitiveness. ‘The Finnish economy has faced two major changes at the same time: the restructuring of Finnish industry and the recession in the wake of the financial crisis,’ continued Governor Liikanen.
The unemployment rate is forecast to rise to 8.6% in 2014, nor will it come down significantly in 2015. Weak economic growth and the ongoing restructuring in the economy will be reflected in the employment figures. ‘The growth in unemployment could have long-term consequences for young people, and particularly for young men, now seeking to enter the labour market. It is vital to avoid a situation in which some young people could become permanently excluded from the labour market,’ Governor Liikanen pointed out.
Inflation will slow to 2.3% in 2013, and further to 1.9% in 2014, when the rising trend in energy prices will flatten out and domestic demand will be more subdued.
The marked deterioration in the economic situation makes it harder to restore the health of the public finances. Fading private consumption and declining employment will reduce tax revenues and increase unemployment expenditure. Halting further debt accumulation will therefore require additional efforts.
‘Finland’s strength lies in strong basic education, a knowledgeable workforce, a functioning infrastructure and reliable organs of administration and justice. A sustainable improvement in the economy and employment will, however, require enhanced international competitiveness, structural reforms to boost the potential output of the economy and successful innovation policies,’ stated Governor Liikanen.