Economic growth in Finland is lagging clearly behind euro area growth. Developments in Finland’s export markets and Finnish exports now look weaker than previously forecast, and as a result foreign trade will give little stimulus to the economy in the immediate years ahead. During the forecast period, growth will depend on domestic demand. In 2016, the Finnish economy will grow 0.7%, followed by 1.0% in 2017.
World trade growth was much more sluggish in 2015 than expected still in the summer. Chinese growth has slowed, and the Russian economy will continue to contract during the forecast period. At the same time, growth is fairly brisk in important Finnish export markets in Europe and the United States. Monetary policy accommodation has been increased, which supports price stability and euro area growth.
Increasing investment in the euro area will boost Finnish exports in 2016, but Finnish exports will not reach the pace of growth in the export markets. At the present moment, there is a lack of those factors present in previous growth phases in economic history that could facilitate a speedy recovery in exports, such as rapid growth in world trade or new, specially competitive export products.
There have been some signs of a recovery in investment activity also in Finland, and investment is forecast to enter a period of gentle growth in 2016 and 2017, in step with gradually strengthening external demand and the projects already underway.
Private consumption will increase only moderately in the forecast period, but even weak growth will help sustain private demand. Household incomes have developed in a relatively stable manner during the recession years, due to the increased significance of current transfers as a source of income, particularly on account of the increase in the retired population.
Consumer price inflation will remain exceptionally slow amidst continued low foreign and domestic price pressures. In Finland, inflation will average −0.1% in 2015, picking up to 0.3% in 2016 and 1% in 2017.
Nominal earnings will rise moderately in the forecast period in accordance with the current labour market agreement, and the slow inflation will support growth in real earnings. Despite the pay restraint, the growing trend in unit labour costs would appear set to continue at a faster pace than in the rest of the euro area, as productivity growth will continue to be very slow. The labour market situation will improve only slowly over the forecast period, due to subdued economic growth and higher structural unemployment.
Finland’s general government fiscal position has been in deficit for six years already. General government debt will exceed 68% of GDP, and in 2017 it will be more than twice the level of 2008.
Both households and the public finances have since 2009 been simultaneously in deficit. The external balance of the economy has long been bolstered by the financial surplus in the corporate sector, which, in turn, is sustained by the low level of corporate investment. The potential output of the economy continues to decline and the Finnish economy is currently running on debt.
For further information, please contact Juha Kilponen, Head of Forecasting, tel. +358 10 831 2847.
- Suomen talouden tilanne edelleen hankala (in Finnish)
- Euro & talous publication website (in Finnish)
- Slides (PDF)
Forecast for the Finnish economy will be published in English later in December at www.bofbulletin.fi.