- Jobs growth has been strong but the upsurge will remain a temporary phenomenon.
- Labour productivity growth will remain slower than over the last decade.
According to the Bank of Finland forecast published today, Finnish GDP will grow by 2.7% in 2018. In 2019, GDP growth will moderate to 1.9%, in 2020 to 1.7% and in 2021 will converge towards its long-term potential rate, at just under 1.5%. Inflation, which has remained low in the past few years, will pick up gradually, reaching 1.7% in 2021.
Economic growth has been broadly based in recent years. The global economic boom has increased demand for Finnish goods and services exports. Finland’s competitiveness has improved, and investment has bolstered the output potential of the country’s export companies. Household consumption has been underpinned by improved purchasing power, higher employment and low interest rates.
About 60,000 new jobs will be created in 2018. Employment has grown faster than forecast, but this will remain a temporary phenomenon. Job creation will be dampened by persistently high structural unemployment, insufficient supply of skilled labour and other mismatch issues as well as a shrinking working-age population. Without structural reforms, labour supply is looking to become a bottleneck for economic growth.
“Employment has improved at an exceptionally rapid pace, but this will remain a temporary phenomenon. A shrinking working-age population and companies’ difficulties in finding skilled labour will contribute to dampening growth in the years ahead”, stated acting Head of Forecasting Meri Obstbaum at the press briefing for the publication of the new issue of the journal Euro & talous. In addition to the availability of labour, growth will be dampened by weak productivity development. “Labour productivity is currently growing at a considerably slower pace than prior to the financial crisis. The growth outlook for Finland will remain muted over the long term, too”, Obstbaum added.
Economic growth has strengthened the position of the public finances in recent years, in an environment marked by higher employment, fiscal adjustment and growth in tax revenues. Fiscal policy will ease this year, however, and the public finances will continue to remain in deficit for the next three years.
The Finnish economy will continue to grow, but the peak of the economic cycle has been passed. Export growth is set to continue, but the uncertainties surrounding global economic developments and a weaker outlook for the euro area increase the likelihood of weaker-than-forecast economic performance. The most significant risk to the forecast is the possibility that export growth in the next few years will slow faster than predicted.
For further information, please contact Meri Obstbaum, acting Head of Forecasting, tel. +358 9 183 2363.