Finland Times

 

Markus Sovala of the stability unit of economic affairs of the Ministry of Finance published the economic forecast of the country at a press conference in Helsinki on Thursday. Photo Lehtikuva.

The Finnish economy will grow by 1.1% this year and the growth rate will remain unchanged in the following years, according to the Finance Ministry’s economic survey conducted in Autumn this year.

 

Although the price competitiveness of production will improve and unemployment will gradually fall, GDP growth will be very slow and general government finances will remain significantly in deficit, said a press release of the Ministry of Finance quoting the survey.

 

In 2018, GDP will still be nearly 3% below and industrial production just over 5% below their levels in 2008.

 

Although prospects for the global economy and trade have deteriorated in recent times, in many countries important for Finnish exports the outlook is quite favourable. 

 

Finnish exports will grow more slowly than global trade and export markets, and Finland will continue to lose its share of international trade.

 

Slowly improving employment, a strengthening of belief in the future, low inflation and tax reductions linked to the Competitiveness Pact will support consumption. 

 

In 2018 the unemployment rate is projected to be 8.5%. Investment growth will be broad-based. Particularly in construction, growth will be buoyant.

 

File Photo Lehtikuva.

As a result of the Competitiveness Pact, earnings will rise by less than 1% in 2017 and employers’ social security contributions will decrease by approximately 7 per cent. 

 

According to the forecast, the pact will improve the price competitiveness of Finnish companies significantly, for example in comparison with Sweden and Germany. Although the positive effects of the pact will become fully evident in the economy only over the longer term, the pact will already begin to increase employment within the forecast horizon.

 

In the next few years, the economy will grow faster than potential output, which describes the production opportunities of the economy. In the medium term, growth of potential output will remain below 1%, because the increasing role of the service sector in the economy will slow productivity growth, and the contraction of the working age population will constrain growth in the supply of labour in the economy.

 

Although Finland’s general government deficit will decrease, public finances will remain significantly in deficit within the forecast horizon. 

 

The subdued growth in the economy will not generate sufficient income to finance public expenditure. Expenditure will be increased by the ageing population in particular. Government consolidation measures will reduce the deficit over forecast period.

 

There are upside and downside risks associated with the forecast. As the Finnish economy is growing slowly, it is sensitive to disruptions. Growth is insufficient to improve the labour market situation adequately. 

 

Increasing long-term unemployment threatens to remain an enduring problem for the Finnish economy. In Finland’s public finances, there are no buffers to absorb shocks arising from possible disruptions. On the other hand, the measures contained in the Competitiveness Pact might improve Finnish companies’ opportunities to benefit from demand in the global economy, and by more than anticipated in export markets important to Finland.