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Home BUSINESSSluggish economic growth forecast
Thu, 11 Jun, 2015 01:50:21 AM
FTimes Report, Jun 11
Photo – Lehtikuva.
The Bank of Finland in its latest economic growth outlook has given a bleak assessment of the Finnish economy.
According to the Bank of Finland, weaker international economic conditions, population ageing and only modest productivity developments have kept the situation in the Finnish economy unfavorable for many years.
Despite the slow growth, the economy will begin to grow gradually as the export markets pick up and the accommodative stance of monetary policy supports recovery, said the Bank of Finland in a release.
According to the Bank’s forecast, the Finnish economy will still grow very slowly in 2015, at 0.2 percent. Finland will not reach the euro area pace of growth even in the next few years.
Growth in 2016 and 2017 will be 1.2 percent and 1.3 percent, respectively. 
The figures could turn out to be even lower if the global economy were to improve more slowly than expected. Domestic risks relate to the success of economic policy. 
There is no quick solution for Finland’s structural problems, and growth is expected to remain slow for a prolonged period.
Finnish exports have lost market share since 2009. Competitiveness has weakened at the same time as the forest industries and electrical engineering and electronics have been in difficulties. New export sectors and businesses are proving slow to emerge and the importance of exports for Finnish employment has diminished. 
Overall, productivity will improve only slightly in the immediate years ahead. However, the moderate level of pay increases will end the weakening trend in cost-competitiveness vis-à-vis other euro area economies.
In recent years, consumer prices in Finland have risen faster than elsewhere in the euro area. The weakness of economic activity will cause inflation in Finland to decline to 0.2 percent in 2015. As growth picks up, inflation will accelerate to 1 percent in 2016, remaining, however, below the euro area average.
Despite a moderate improvement in economic conditions, the labour market situation will barely ease in the next few years. 
Prolonged unemployment can lead to increasing structural unemployment and mismatch problems, as jobs and workers fail to match by region and by sector. Over the long term, the diminishing working-age population will also constrain labour supply and economic growth.
The tepid economic situation is most clearly reflected in the public finances. The deficit is large and age-related expenditure has grown, fuelling debt accumulation. In 2014, Finland’s general government deficit already exceeded the 3 percent threshold defined in the EU’s Stability and Growth Pact. 
The Government’s consolidation measures will, if carried through, markedly strengthen the public finances and turn the debt ratio onto a downward trajectory by the end of its term in office.
Subsequently, however, the debt ratio will resume an upward trend in response to accelerating growth in ageing-related expenditure. 
Growth effects will essentially depend on whether cost-competitiveness can also be improved, said the Bank of Finland.
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