Economic outlook for

Transcription

1 Economic outlook for Euro & talous (Bank of Finland Bulletin) 3/2012 Governor 1

2 Growth outlook subdued 2

3 Finnish economy will grow slowly % change on previous year (right-hand scale) At reference year (2000) prices (left-hand scale) 180 EUR billion % Sources: Statistics Finland and Bank of Finland. 3

4 Growth dependent on domestic demand 10 % points Net exports Public sector demand Inventory change and statistical discrepancies Private consumption Private investment % change in GDP volume The chart is merely indicative. The GDP growth contribution of each demand item has been calculated on the basis of its volume growth and its value share in the previous year. The figures for are forecasts. Sources: Statistics Finland and Bank of Finland. 4

5 Supply and demand 2011* f 2013f 2014f EUR billion Volume, % change on previous year GDP 191,6 3,7 2,9 1,5 1,2 1,6 December forecast 2,8 0,4 1,8 Change 0,1 1,1-0,6 Imports 75,9 7,7 0,1 1,8 5,3 5,2 Exports 74,9 7,8-0,8 2,2 5,1 5,2 Private consumption 105,3 3,0 3,3 1,4 1,3 1,6 Public consumption 45,7 0,2 0,8 1,1 0,2 0,4 Private investment 31,9 4,1 5,0 1,5 3,3 3,5 Public investment 4,8-6,7 2,4 0,2 0,6 0,6 * At current prices, EUR billion. The data on 2011 are Statistics Finland s advance data; more precise National Accounts data will be published on 12 July

6 Employment growth comes to a halt 6

7 No improvement in employment in immediate years ahead Employed (left-hand scale) 2600 Unemployment rate (right-hand scale) 1,000 persons % Bank of Finland's seasonally adjusted figures Sources: Statistics Finland and Bank of Finland. 4 7

8 New jobs in service sectors Sectoral changes in employment Manufacturing and other industrial activities Construction Change from previous year, 1,000 persons Source: Statistics Finland. Trade, transportation and storage, accommodation and food service activities Agriculture, forestry and fishing, mining and quarrying Public administration, education, health care and social services Other activities 8

9 Slower productivity growth GDP/hour worked GDP/person employed 6 % change on previous year Sources: Statistics Finland and Bank of Finland. 9

10 Labour costs increase substantially 10 Compensation per employee Unit labour costs Productivity per person employed % change on previous year Sources: Statistics Finland and Bank of Finland. 10

11 Household demand fading, exports gradually picking up 11

12 Household savings falling 6 % Savings ratio Real disposable household income** Private consumption** * Households and non-profit institutions serving households ** % change on previous year Sources: Statistics Finland and Bank of Finland. 12

13 Investment growing slowly 30 Private investment (left-hand scale) Private investment excl. housing (left-hand scale) Housing (left-hand scale) Private investment, at reference year (2000) prices (right-hand scale) % change on previous year EUR billion Sources: Statistics Finland and Bank of Finland

14 World trade growth supports exports Exports of goods and services Finland's export markets 140 Index, 2007/I = Sources: Statistics Finland, Eurosystem and Bank of Finland. 14

15 Market share of Finnish goods exports contracted sharply Market shares of Finland, Sweden and Germany Finland Sweden Germany 120 Index, 1999 = Sources: Comtrade and calculations by the Bank of Finland. 15

16 Services exports narrowly based 14 Other services exports by sector Manufacture of radios, TVs and data communications equipment Other industry Non-industrial sectors EUR billion Source: Statistics Finland. 16

17 Current account to remain in deficit Current account Goods and services account* 12 % of GDP * National Accounts. Sources: Statistics Finland and Bank of Finland. 17

18 Inflation to gradually slow 18

19 Inflation driven by service and food prices Services Processed food Energy Non-energy industrial goods Unprocessed food Total index 6 Contribution to HICP inflation, % points HICP = Harmonised index of consumer prices Source: Statistics Finland. 19

20 Increases in indirect taxes push up the price level HICP HICP at constant tax rates 5 % change on previous year HICP = Harmonised index of consumer prices Sources: Statistics Finland and Bank of Finland. 20

21 Fiscal policy tightening will strengthen public finances 21

22 General government balance improves Local government Social security funds Central government General government 8 % of GDP Sources: Statistics Finland and Bank of Finland. 22

23 Central government debt ratio stabilizes 90 General government EDP debt Central and local government debt Central government debt % of GDP Sources: Statistics Finland, State Treasury and Bank of Finland. 23

24 Public expenditure share of GDP remains high Primary expenditure, % of potential GDP Primary expenditure, % of GDP Total tax ratio, % of GDP % of GDP Sources: Statistics Finland and calculations by the Bank of Finland. 24

25 Restructuring of the economy and the longterm outlook for growth 25

26 Labour productivity is vital to growth Capital intensity Total factor productivity Labour input GDP, % change % points Sources: Statistics Finland and calculations by the Bank of Finland. 26

27 Population ageing and growth of service sectors will slow long-term growth Growth ,9 Sectors productivity 0,2 Production structure -0,2 Labour input -0,4 Growth Sectors productivity Production structure Labour input Growth ,5-0,1-0,1 0,0 1,

28 How can we avoid the imbalances threatening the economy? 28

29 Current account has weakened during the last decade 10 % of GDP Sources: Bank of Finland and Statistics Finland. 29

30 Import prices up relative to export prices Export prices Import prices Terms of trade 140 Index, 2005 = Source: Statistics Finland. 30

31 Key export sectors declined Paper industry Electronics industry 6 Share of GDP, % Source: Statistics Finland. 31

32 Steep rise in Finnish unit labour costs in UK Netherlands Euro area Germany France Finland Sweden Unit labor costs, index, 1999 = Seasonally adjusted. Source: European Central Bank. 32

33 Finnish households moved deeper into debt Finland Euro area 40 Change between years 2007 and 2011, % GDP, volume Private consumption, volume Residential investment, volume Household loans Sources: Eurostat and European Central Bank

34 How the imbalances can be avoided Continued consolidation of public finances Lengthening working careers and other structural reforms to strengthen potential output Controlling the increase in household debt Ensuring cost-competitiveness 34

35 Bank of Finland Bulletin Economic Outlook 3/2012 Articles: Assessing the Finnish house price development with various measures -Jarkko Kivistö Market share of Finnish goods exports contracted sharply in the 2000s -Seppo Orjasniemi and Terhi Ravaska The long-term growth forecast for the Finnish economy -Helvi Kinnunen, Petri Mäki-Fränti, Elisa Newby, Seppo Orjasniemi and Jukka Railavo 35

36 Thank you! 36

37 Alternative scenario: Households strengthen their financial position by adjusting demand 37

38 Savings ratio rises to long-run average level Household savings ratio Forecast Alternative scenario Average % Households and non-profit institutions serving households. Sources: Statistics Finland and calculations by the Bank of Finland. 38

39 Also a decline in housing investment Households gross savings and investment ratios Savings ratio Alternative scenario Investment ratio Alternative scenario 9 % of GDP Households and non-profit institutions serving households. Sources: Statistics Finland and calculations by the Bank of Finland. 39

40 Improved financial balance in household sector would weaken growth and public finances GDP, % change Difference Private consumption, % change Difference Household savings ratio, % of disposable income Difference Current account, % of GDP Difference Net lending by public sector, % of GDP Difference

41 Household indebtedness and interest burden in Finland 120 Loan stock (left-hand scale) Share of housing corporations' loan stock (left-hand scale) Interest expenditure (right-hand scale) % of disposable income % of disposable income Sources: Statistics Finland and Bank of Finland calculations. 0 41