​Growth prospects for the advanced economies have remained subdued. Growth is being hampered by the slow improvement in productivity, reflecting possible delays in the introduction of new technologies and their slower diffusion, as well as the fading dynamics of the operating environment for non-financial corporations. Long-term interest rates have also remained at record low levels in key economic regions.

The outcome of the EU referendum in the United Kingdom added to uncertainty on the financial markets in summer 2016, but the implications for market prices remained short-lived, except for exchange rates. However, new factors that are hard to model have taken centre stage in economic discourse. Issues relating to immigration and free trade are on the global agenda.

The Bank of Finland’s new forecast for the global economy foresees ongoing global growth of a full 3% in 2017–2018, i.e. only slightly faster than in 2016. This will be supported by continued strong growth in the United States and China. Even so, the risks to the forecast are predominantly on the downside. A possible upside growth shock could come from improved productivity in the United States.

The inflation outlook remains subdued in the main economic regions. The current year will still be weighed by the decline in the price of oil that has already taken place. After this, improvements in economic prospects and the ongoing accommodative stance of monetary policy will gradually begin to boost inflation. However, longer-term inflation expectations remain muted, which is a worrying trend. According to market expectations, major central banks will keep their respective monetary policies accommodative, although interest rates in the United States are expected to rise slightly.

US growth is envisaged to accelerate to a good 2% following this year’s slower interlude. On top of private consumption, fixed investment will also begin to bolster growth. In China, economic growth will continue to slow in an orderly manner as the structure of the economy shifts from investment to private consumption.

Brexit will dampen growth in Europe. The aggregate EU22 economy will grow by 1.3% in 2017 and 1.6% in 2018. The growth forecast for the United Kingdom has been subject to the strongest downward revisions, but the effects will also be visible elsewhere in Europe, particularly via receding exports and lower investment in export industries.

Euro area internal economic fundamentals will provide ongoing support to growth. The accommodative stance of monetary policy will continue, the private sector’s debt-servicing burden will diminish, fiscal tightening will abate and the employment situation will improve. In this respect, the favourable trend that began in the euro area in 2013 is projected to continue in the immediate years ahead. Several hard-to-quantify risks nevertheless depress the outlook.

For further information, please contact: Samu Kurri, Head of Division, tel. +358 10 831 2288.

The package of articles on monetary policy and the international economic forecast will be published in English in October at www.bofbulletin.fi.