Economic Survey, autumn 2015
The Finnish economy is in a serious situation. GDP growth is close to zero. Unemployment is rising and unemployment
spells are becoming longer. Even once the recession is over, growth will be painfully slow. Recent news about the global economic outlook has again highlighted cause for concern. Growth prospects in China are continuing to deteriorate, and the Russian economy remains on a downward course. During the outlook period the most robust period of growth in emerging economies will also peak and turn down. On the other hand, many of Finland’s major trade partners have seen healthy economic development. It is predicted that the US economy will reach growth of almost 3%, and in the UK economic growth is broadly based. The euro area, too, is back on a track of moderate growth.
In 2015, Finland’s GDP is forecast to show growth of 0.2%. The forecast predicts a very moderate cyclical improvement in the latter half of 2015. Exports of goods and services will increase by 0.9%, while imports will fall by just 0.2%. The contribution of net exports will therefore be clearly positive. The only demand item expected to show growth in 2015 is private consumption, which will be up one per cent. Private investment will decline for the fourth year in succession, this year by 2%. It is estimated that the number of persons employed will be 0.7% lower than last year, and the annual average unemployment rate is predicted to come in at 9.6%. The sharp rise in long-term and structural unemployment is a particular cause for concern. Earnings levels will rise slowly over the forecast horizon. In 2015 the index of wage and salary earnings will rise by 1.1% and over the next two years by 1.2%.
The annual growth forecast for 2016 is 1.3%. This growth will be driven by favourable investment trends. The effect of net exports on economic growth will turn negative. Despite the gradual rebound of exports, imports will show stronger growth than exports on the back of recovering domestic demand. Because of the modest development of real incomes, private consumption growth will slow somewhat from 2015. The projected unemployment rate is 9.4%. Consumer prices will accelerate, but inflation will still remain moderate at around one per cent.
The projected 2017 GDP growth rate is 1.4%. Growth will be driven by domestic demand, as the net contribution of exports will remain negative. Over the forecast horizon the Finnish economy will grow slightly faster than potential output, and therefore the negative output gap will shrink.
General government will continue to run a deficit until the end of the decade, although substantial adjustment will help to reduce the amount of deficit. Finland’s public debt will exceed the 60% limit in 2015, and the debt ratio will continue to rise in the next few years, albeit at a slowing rate.
