Finland's economic growth is broadly based, fuelled by exports, while at the same time domestic demand continues to be strong. According to the Bank of Finland forecast, GDP will grow 3.1% in 2017 and 2.5% in 2018. Over the years 2019–2020 the economy will grow approximately 1.5% per annum. Cost pressures remain subdued and inflation will be slower than elsewhere in the euro area throughout the forecast period.
The key factors behind the upswing have been external, such as the acceleration in global trade growth. Although the upswing has strengthened further, 2017 will see the most rapid growth in the forecast period 2017–2020. The pull from the international economy and the growth impact of monetary policy decisions already taken will ease somewhat and Finland's subdued long-term growth potential will begin to slow the pace of growth towards the end of the forecast period. In the short-run, the forecast risks are on the upside.
Finland's exports will gain from continued strong growth in the most important export markets and improvements in cost-competitiveness among Finnish exporters. The outlook for the Finnish export sector will improve due to a stronger investment growth in the euro area. Export growth will strengthen the current account, which will be close to balanced throughout the forecast period. This will help lay a foundation for more balanced growth going forward.
Private consumption will grow on the back of the improved employment situation and consumers' enhanced purchasing power. Continued negative real interest rates and strong consumer confidence will encourage households to consume. The exceptionally accommodative monetary policy will hold interest rates low also on corporate loans and support investment. Investment will grow strongly in the immediate years ahead, but the pace will slow as we approach 2020.
Finnish employment will recover slowly relative to the strength of the business cycle. In 2017 and 2018 employment will grow as demand for labour increases, but mismatch problems, the changing population structure and other labour market supply-side factors will hamper employment growth. Looking ahead, however, the economy will benefit from a slight acceleration in productivity growth.
The improved economic conditions have also brought an improvement in the public finances. The general government deficit will shrink to 1.1% of GDP in 2017 and 0.7% by 2020. The fiscal stance during the forecast period is loose relative to the current and future economic situation. The general government sustainability gap will remain around 3%.
Additional information: Head of Forecasting Juha Kilponen, tel. +358 9 183 3441.
Forecast for the Finnish economy will be published in English in the beginning of January at www.bofbulletin.fi