Deputy Governor Pentti Hakkarainen
Helsinki Diplomatic Association political lunch
Helsinki 30 November 2009
Main points of the luncheon speech:
ECONOMIC OUTLOOK 2009–2011
Globally and in Europe
– The global economy has shown some signs of stabilising.
– In the large economies of Asia economic growth has remained brisk.
– In the third quarter of the current year, output also began to grow in many developed economies.
– The state of the financial markets has improved fundamentally since the spring.
– Government measures to stabilise the financial markets have proved a success, they made it possible to prevent a collapse of the financial system.
– The lowering of policy interest rates by central banks was necessary to stabilise the financial markets.
– The expansionary impact of fiscal policy has also been considerable. In many European countries, automatic fiscal policy stabilizers have cushioned the negative impacts on domestic demand and employment from the collapse in world trade.
– Given the scale of the global economy, it has been an important feature that fiscal policy has been relaxed simultaneously in different parts of the world.
– Fiscal and monetary policy have worked together to support economic recovery.
– The fact the economic situation is stabilised does not mean the economy will quickly return to the status quo before the crisis.
Growing public debt is causing increasing concerns over the sustainability of the public finances.
Finland and her economy
– According to the Bank of Finland forecast annual GDP volume will contract 7,2 % this year, remain unchanged next year and grow 1,6 % in 2011. Based on the forecast Finnish GDP in 2011 will still be well below the level of 2008. It is possible there will be no return to the earlier trend in GDP.
– As an industrial economy dependent on exports, the collapse in world trade has hit Finland particularly hard.
– The scale of the slump in Finnish exports was due partly by the fact that the bulk of exports consists of capital goods (and their components).
– The Finnish economy will likely recover later and more slowly than many others.
– The fundamentals for a positive export development are in place since companies’ balance sheets are healthy and they use modern advanced technology in their production and currently there is some unused capacity available. There is, however, no reason to simply assume that recovery in the world economy will automatically restore things to how they were before the recession.
– As in other countries, the accumulation of debt by the public sector in Finland is justified to soften the impact of the recession.
– A sustained period of increasing indebtedness is, however, not possible. Before long it will be necessary to reach a sustainable level of public debt in relation the GDP.