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Economic outlook for Finland
Reijo HeiskanenOP Financial Group
February 2017
Economic growth has picked up and it is set to continue at reasonable
paceFinnish GDP
Annual rate, %
-3
-1
1
3
5
2010 2011 2012 2013 2014 2015 2016 2017 2018Source: Macrobond, OP
Consumer confidence pointing to healthy consumption growth
Retail Trade, rhsBa
lanc
e
-10
-5
0
5
10
15
20
25
%
-4
-2
0
2
4
6
2008 2010 2012 2014 2016Source: Macrobond, OP
Industrial cycle is gaining strength
Net
Bal
ance
-40
-30
-20
-10
0
10
20
30Index
90
95
100
105
110
115
120
125
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Lähde: Macrobond, OP
Diversified goods exports structure by country
5
Finnish economy
Finland’s largest goods exports countries Goods exports by country*2000-15 January–October 2016
Goods exports to EU member countries’ 59.8% and to Euro Area38.2% in January-July 2016
* Other countries: Norway (3,0%), Poland (2,8%), Italy (2,5%), Spain (1,9%), Japan (1,9%), Denmark (1,7%), Turkey (1,5%), Switzerland (1,6%), South Korea (1,3%), Latvia (1,0%), India (1,0%) and diversified other countries with a share of less than 1,0%.
Fall in value of exported goods seems to be bottomoning out
Finnish goods exports
Index 2011=100, 12-month moving average
Euro area
Russia
Other countries
50
60
70
80
90
100
110
120
2011 2012 2013 2014 2015 2016Source: Macrobond, OP
• The competitiveness pact will improve competitiveness by reducing private sector’s unit labour costs by 3.7%. In addition, wage freeze in 2017 will improve competitiveness by 0.5%. In total 4.2%.
• Measures will be phased in, therefore ULC will reduce by 3.3% and 3.8% in 2017-2018, respectively. From 2019 onwards, the impact of the measures will be 4.2%.
• According to Ministry of Finance’s calculations, decline in the ULC would boost GDP by 1.4% in the medium term and strengthen employment by 35 000.
• Eventually, the pact’s coverage reached over 90%, which means that the government will reduce taxation of wage-earners by 0,515 bn. euros in 2017. The tax cuts will outweigh the gradual increase in employees’ social security contributions in 2017.
• According to the OP’s economists the pact will start to impact exports positively late 2017, while the main effect will be seen in 2018-19.
How measures improving cost-competitiveness will impact economic growth?
Measures Impact on reducing unit labour costs, % (year 2021)
Increasing hours worked per year by 24 hours
1.5
Reduction in employer’s social security contribution
0.5
Transfer of the unemployment insurance contribution by 0.85 p.p. from employers to employees
0.7
Transfer of the earnings–related pension contribution by 1.2 p.p. from employers to employees
1.0
Wage freeze in 2017 0.5
Total 4.2%
Labour market picture is improvingFinland, Labour market
Unemployment rate, SA, rhsEmployment, SA, lhs
%
-5-4
-3
-2
-1
01
2
3
Percent
6,0
6,5
7,0
7,5
8,0
8,5
9,0
9,5
2006 2008 2010 2012 2014 2016Source: Macrobond, OP
Inflation – moderate pick-up in 2017Consumer prices in Finland
*HICP excluding energy and food
Annual change, %
-2-10123456
2008 2010 2012 2014 2016Source: Macrobond, OP
Deficit diminishing, increase in debt slowing
% of GDPDebt (right)
-4
-2
0
2
4
6
25
35
45
55
65
75
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19Lähde: Macrobond, OP
Broad based growth aheadForecasts for the Finnish economyPublished on 24 January, 2017
Volume, % change on previous year 2015 2015 2016f 2017f 2018f EUR bn
GDP 209,1 0,2 1,7 1,8 2,0Imports 77,5 1,9 2,2 3,0 3,5Exports 76,6 -0,2 1,1 3,5 5,0Consumption 166,7 1,1 1,5 0,9 1,1 Private consumption 115,7 1,5 2,1 1,5 1,5 Public consumption 51,0 0,4 0,2 -0,5 0,2Fixed investment 42,7 0,7 3,0 4,1 3,0
Other key indicators 2015 2016 2017f 2018f
Consumer price index, % change y/y -0,2 0,4 1,4 1,6Unemployment rate, % 0,4 8,9 8,3 7,8Current account balance, % of GDP -0,4 -0,6 -0,6 -0,4General government debt, % of GDP -2,6 -2,3 -2,3 -1,8General government net lending, % of GDP 63,6 63,5 64,6 65,1
Sources: Statistics Finland and OP Financial Group
Stable growth in household loansFinland, MFIs loans, Change Y/Y
to Households, Housing Loans
to Non-
Perc
ent
-7,5
-2,5
2,5
7,5
12,5
17,5
2009 2010 2011 2012 2013 2014 2015 2016Source: Macrobond, OP
Moderate development in house prices
Finland, Real estate prices, Old dwellings
Greater Helsinki
Rest of Finland
Total
Inde
x, 2
010=
100
97,5
100,0
102,5
105,0
107,5
110,0
112,5
2010 2011 2012 2013 2014 2015 2016Source: Macrobond, OP
Average house prices and households’ debt
14
Latest values: Q3/2016 Latest values: 2015
Finnish economy
Balanced goods exports structure by commodity group
15
Finnish economy
Goods exports 70% of total exports and share of service exports gradually increasing
Goods exports by commodity group Goods exports by commodity group2000-15 January–October 2016
Finally upswing ahead• According to the latest information, the Finnish economy achieved moderate GDP growth in 2016. Consumer and business
surveys have improved and point to healthy growth ahead.
• OP’s economists expect Finnish GDP to rise 1.8% this year and 2.0% next year. This is the first time the 2018 growth forecast is issued. The 2017 growth forecast is 0.4 percentage points higher than in the adjusted prediction issued in November 2016.
• Economic growth in 2016 relied on consumer spending and construction. This year GDP growth will rest on a broader foundation. Exports and corporate investments will also recover. Prerequisites for stronger export growth in 2018 are in place. Construction growth, on the other hand, will slow down from the recent high level.
• Inflation should shift from the zero per cent level as the consumer price index rise will no longer be halted by oil price decreases. Pressure on costs is, however, only moderate and inflation is predicted to hover around 1.5%.
• Employment should increase relatively strongly both this and next year. The 2018 employment rate is expected to near the 70.3% level achieved in 2008 at the peak of the economic cycle. Labour supply is anticipated to start rising as job opportunities increase. The unemployment rate is expected fall roughly at the same pace as last year. It is forecast to decrease to 8.3 per cent this year and 7.8 per cent next year.
• The public deficit should continue decreasing again in 2018 after an intermission period, but the debt-to -GDP ratio will continue rising both in 2017 and 2018.
Thank you!
Macroeconomy