Economic Survey, winter 2016
Finnish GDP is predicted to grow by 1.6% in 2016, 0.9% in 2017 and 1.0% in 2018. This first part of 2016 saw faster than predicted GDP growth. In the third quarter GDP was up 1.6% from Q3 last year. Growth in 2016 has been driven by domestic demand, particularly the growth of private consumption. Construction investment has also increased rapidly. The labour market situation has improved during 2016 and the trend of the unemployment rate has dropped back to 8.6%.
In 2017 private consumption growth is set to slow in response to accelerating inflation and the consequent slowdown of real income growth. Short-term wage bill growth will be muted because of the Competitiveness Pact agreement. Private investment growth will slow temporarily in 2017 with the turnaround in the growth of construction investment. In 2017 the volume of public consumption will fall by 0.5%. Public consumption expenditure will decrease as a result of holiday bonus cuts, reductions to the employer’s social security contributions and longer annual working hours agreed upon in the Competitiveness Pact. Export growth will accelerate in 2017 and 2018. This growth will be driven by transport equipment deliveries already scheduled.
Changes to social security contributions and tax cuts under the Competitiveness Pact will entail a short-term deterioration of public finances.Central government and local government are firmly in deficit, the earnings-related pensions sector is in surplus and other social security funds marginally in deficit. General government debt to GDP will continue to grow in the immediate future.
The Competitiveness Pact agreement provides a platform for taking advantage of emerging export opportunities and strengthens confidence in domestic economic policy. However, it will take some time for the benefits of the Competitiveness Pact to filter down into real economic development.