Outlook for the Finnish economy 2016-2018

Julkinen

Ennustepäällikkö, Suomen Pankki

Outlook for the Finnish economy 2016-2018

9.6.2016

Juha Kilponen

Suomen Pankki – Finlands Bank – Bank of Finland Julkinen

Forecast comparison with the external environment

9.6.2016 Juha Kilponen

Sources: ECB, BMPE projections.

Annual change, % Kesäkuu 2016 Joulukuu 20152015 2016 2017 2018 2015 2016 2017 2018

Global GDP(excl. the euro area) 3,1 3,1 3,7 3,8 3,1 3,6 3,9 X

Global trade(excl. the euro area) 0,7 1,8 3,5 4,0 0,5 2,9 3,8 X

Export demand for the euro area 0,6 2,0 3,5 4,0 –0,1 2,7 3,8 X


The Finnish economy is returning to growth, supported by domestic demand

GDP growth will be only around 1% in 2016–2018.

Inflation will be slow for a prolonged period.

The labour market shows improvement, but the unemployment rate will remain high.

Growth is dependent on consumption and investment – export growth remains weak.

Sluggishness in the industrial sector and rising debt levels cause concern about the sustainability of growth.



We are leaving behind a long recession


Real GDP, %

June December

2015 0.5 -0.1

2016f 1.1 0.7

2017f 1.1 1.0

2018f 1.0

-10

-5

0

5

10

140

160

180

200

220

2000 2005 2010 2015

% change on previous year (right-hand scale)

At reference year (2010) prices (left-hand scale)

EUR bn %

Sources: Statistics Finland and Bank of Finland.

9 Jun 2016bofbulletin.fi24078 @E&T 3_2016


Growth strongly dependent on domestic demand


-10

-5

0

5

2008 2010 2012 2014 2016 2018

Net exports Private consumption

Public sector demand Private investment

Inventory change and statistical discrepancies

% change in GDP volume

% points

The chart is merely indicative. The GDP growth contribution of each demanditem has been calculated on the basis of its volume growth and its value share in the previous year. The figures for 2016–2018 are forecasts.Sources: Statistics Finland and Bank of Finland.

9 Jun 2016bofbulletin.fi20756 @Kontribuutio (e)


Balance of supply and demand


% change on previous year 2015 2016e 2017e 2018e

GDP 0.5 1.1 1.1 1Private consumption 1.4 1.6 0.6 0.7Public consumption -0.9 0.6 0.3 0.2Private fixed investment -1.0 4.7 3.6 2.6

Public fixed investmentt -1.2 2.3 1.6 -0.5Exports 0.6 0.7 2.4 2.5Imports -0.4 2.7 2.5 2

Sources:B ank of Finland and Statistics of Finland


Increase in euro area exports, contraction in extra-euro area exports


60

65

70

75

80

85

90

95

100

105

2008 2010 2012 2014 2016 2018

Total exports Euro area exports Extra-euro area exports2008=100

Sources: Bank of Finland calculations and Statistics Finland.9 June 2016bofbulletin.fi32707@@EX

Exports of goods and services; volume


Upward trend on the labour market


Number of employed andunemployment rate

Employedpersons

Unemploymentrate

2015 2437 9.4

2016f 2447 9.2

2017f 2463 9.0

2018f 2477 8.9


Slower growth in unit labour costs


Compensation per employee andproductivity, %

Compensationper employee Productivity

2015 1.6 1.02016f 1.2 0.72017f 0.9 0.42018f 1.3 0.5

-6

-4

-2

0

2

4

6

8

10

2005 2010 2015

Compensation per employeeUnit labour costsProductivity per employed person


9 Jun 2016bofbulletin.fi31717@E&T_3_2016

% change on previous year


Inflation slow for a prolonged period


HICP, %

Finland Euro area

2015 –0,2 0,0

2016e 0,2 0,2

2017e 0,8 1,3

2018e 1,0 1,6

0

4

8

12

16

20

24

–1

0

1

2

3

4

5

2003 2005 2007 2009 2011 2013 2015 2017

Price level in Finland relative to euro areaFinnish inflationEuro area inflation

Inflation, % Difference in prices, %

Price index is based on household consumption expenditure.Sources: Eurostat and Bank of Finland.31705@hintataso&inflaatio


Decline in household savings ratio


-2

-1

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Savings ratio, % 3-month Euribor, %


General government debt continues to grow – debt ratio will exceed 70%


34.0 32.7

41.747.1 48.5

52.9 55.459.0

62.566.0 68.4 70.2

0

20

40

60

80

2007 2009 2011 2013 2015 2017

% of GDP

Sources: Statistics Finland, State Treasury and Bank of Finland.

%

9 Jun 2016bofbulletin.fi24903@E&T_3_2016_velka_julkyht(en)


General government deficit will shrink –no change in structural deficit


-6

-4

-2

0

2

4

6

2007 2009 2011 2013 2015 2017

Local government Social security fundsCentral government Total general government


% of GDP

9 Jun 2016bofbulletin.fi24903@E&T_3_2016_luotonanto


Current account remains in deficit


-4

-2

0

2

4

6

8

10

12

2000 2005 2010 2015

Primary income and current transfers from abroadServices accountBalance of tradeCurrent account

% of GDP

Source: Statistics Finland. 9 Jun 2016bofbulletin.fi32344@E&T_3_2016_Vaihtotase (en)


Risks to the forecast more balanced than before

The international environment is still subject to negative risks, particularly for emerging economies.

The political situation in the United States and the UK’s EU referendum are also sources of uncertainty.

The situation on the Swedish housing market is a risk to the Finnish financial system.

The key domestic risks relate to the labour market situation, fiscal policies and progress with structural, reform and productivity developments.



Forecast summary


2015 2016f 2017f 2018f 2015 2016f 2017f 2018f

Gross domestic product 0.5 1.1 1.1 1.0 Labour market

Private consumption 1.4 1.6 0.6 0.7 Hours worked -0.1 0.6 0.8 0.5

Public consumption -0.9 0.6 0.3 0.2 Employed persons -0.4 0.4 0.7 0.6Private fixed investment -1.0 4.7 3.6 2.6 Unemployment rate, % 9.4 9.2 9.0 8.9

Public fixed investment -1.2 2.3 1.6 -0.5 Unit labour costs 0.7 0.5 0.6 0.8Exports 0.6 0.7 2.4 2.5 Compensation per employee 1.6 1.2 0.9 1.3Imports -0.4 2.7 2.5 2.0 Productivity 1.0 0.7 0.4 0.5

Contribution to growth

Domestic demand 0.4 1.9 1.1 0.9 Gross domestic product, price deflator 0.4 0.1 0.7 1.0

Net exports 0.4 -0.7 -0.1 0.2 Private consumption deflator 0.2 0.4 0.6 0.8

Inventory change + statistical discrepancy -0.2 0.0 0.0 0.0

Savings ratio,households, % -0.6 -0.8 -0.7 -0.3 Harmonised index of

consumer prices -0.2 0.2 0.8 1.0

Current account, % ofGDP 0.1 -0.6 -0.8 -0.7 Excl. energy

Energy0.3-6.0

0.6-4.4

0.63.2

0.92.8


Thank you!



Additional slides9.6.2016 Juha Kilponen


A substantial increase in the employment rate would require much faster growth


EUR 8 bn

175 000

180 000

185 000

190 000

195 000

200 000

205 000

210 000

2015 2016 2017 2018 2019

GDP Baseline Alternative scenario

GDP stagnates in alternative scenario

At reference year (2010) prices, EUR million

Source: Bank of Finland calculations.

9 June 2016bofbulletin.fi32365 @BKT (e)

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2015 2016 2017 2018 2019

Other TechnologyDomestic market competition Foreign countriesDomestic demand TaxationTotal

Decomposition of shock contribution to private output growth

Percentage points

Sources: Statistics Finland and calculations by the Bank of Finland.

Difference between alternative scenario and baseline forecast,


Components of HICP Inflation


HICP, %

June December

2015 -0.2 -0.1

2016f 0.2 0.3

2017f 0.8 1.0

2018f 1.0-2

-1

0

1

2

3

4

5

2008 2010 2012 2014 2016 2018

Services and industrial goods excl. energyEnergy productsFoodstuffsInflation

%


31705@ET_2016_3_YKHIennuste

9 June 2016bofbulletin.fi

Outlook for the Finnish economy 2016-2018

Economy & Finance

Transcript of Outlook for the Finnish economy 2016-2018