Governor Rehn expressed his concern about the broadly based slowing of global economic growth and its implications for the euro area and Finland. Global growth has been particularly hampered by the trade war between China and the United States, by Brexit and by the uncertainties related to these two factors. According to the ECB’s September forecast, the euro area economy will only grow by slightly over 1% this year and next. The risks to the forecast are tilted on the downside. The ECB forecast projects that, in the immediate years ahead, euro area inflation will fall short of the price stability objective, being well below 2%.

At its meeting in September, the Governing Council assessed that monetary policy conducive to sustainable growth and the convergence of inflation towards the inflation aim would be needed for a prolonged period. ‘Monetary policy was eased substantially in response to the continued shortfall of inflation with respect to the inflation aim. In addition, most recent statistical data point to a weakness of the euro area economy, the persistence of downside risks and a muted inflation outlook for a long time ahead,’ noted Governor Rehn at the public hearing.

The Governing Council’s monetary policy decisions provide substantial monetary stimulus to ensure that financial conditions remain very favourable and support the euro area expansion and the ongoing build-up of domestic price pressures. This underpins the sustained convergence of inflation to the medium-term inflation aim.

The economic outlook for Finland has weakened. In June 2019, the Bank of Finland projected growth of about 1.5% for this year and next. At present, short-term (nowcasting) models foresee growth of only about 1% for 2019. The rapid rise in the employment rate witnessed earlier has come to a halt. ‘The weaker economic outlook and fiscal policy decisions will markedly deepen the general government deficit relative to the Bank of Finland’s June forecast and, in the absence of new measures, turn the debt ratio onto an upward trajectory. In the context of an ageing population, it would be essential to strengthen the long-term sustainability of the public finances. To strengthen the resilience of the economy, it is imperative to meet the objective of raising the employment rate to at least 75%,’ said Governor Rehn.

Finnish households’ debt levels have long been rising, weakening the economy’s capacity to adjust to disturbances. Concerns about indebtedness pertain especially to households with high debt burdens. Growth in consumer credit and housing company loans has altered the composition of household debt towards loans with higher risks. At the same time, the supply of credit by institutions outside the credit institutions sector is taking on increased importance.

‘Macroprudential policy serves to mitigate vulnerabilities threatening financial stability. Changes in the financial system necessitate development of new macroprudential tools. Potential new tools include a debt-to-income cap for loans to households and limits to the maximum amount of housing company loans,’ emphasised Governor Rehn.

Governor Rehn's presentation (PDF, in Finnish)