Growth rates high, but GDP not yet at its 2008 level SUOMEN PANKKI FINLANDS BANK BANK OF FINLAND

Transcription

1 Growth rates high, but GDP not yet at its 2008 level 1

2 Finnish economy in the process of recovery % 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 Consumption to account for a larger share of the economy GDP Public consumption Gross fixed investment Index, 2000 = 100 Private consumption Exports of goods and services Sources: Statistics Finland and Bank of Finland. 3

4 Supply and demand 2010* f 2012f 2013f % change in volume on the previous year GDP 180,3-8,2 3,1 3,8 2,6 2,4 Imports 65,2-17,6 2,6 5,1 6,9 6,9 Exports 70,2-20,1 5,1 8,0 7,0 7,2 Private consumption 97,3-2,1 2,6 2,7 2,0 1,8 Public consumption 44,2 1,0 0,4 1,2 0,7 0,9 Private investment 28,5-17,4 0,9 6,3 6,4 5,5 Public investment 4,9 6,2 0,1 0,8 0,2 0,1 * At current prices, EUR billion. 4

5 Labour markets to recover gradually 5

6 Unemployment to decline, albeit slowly 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 6

7 Labour market mismatch problems have not worsened 2.0 Vacancy rate, % * Unemployment rate, % * Q Sources: Statistics Finland and Ministry of Employment and the Economy. 7

8 Labour supply to decline Change in potential labour force 1,000 persons *21 64-year-olds. Source: Statistics Finland. Change in population 8

9 Productivity growth to slow below 2% 6 GDP/hour worked GDP/person employed % change on previous year Sources: Statistics Finland and Bank of Finland. 9

10 Rise in labour costs to accelerate Compensation per employee Unit labour costs Productivity per person employed 8 % change on previous year figures are forecasts. Sources: Statistics Finland and Bank of Finland. 10

11 Export demand strong, investments to recover gradually 11

12 Households to save more than before 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 Investments to recover gradually 20 % of GDP Total private investment Housing Private investment excl. housing Public investment Investment ratios have been calculated on the basis of nominal figures. Sources: Statistics Finland and Bank of Finland. 13

14 World trade growth to increase Finnish exports 140 Finland's exports of goods and services Finland's export markets World trade Index, 2007 = Sources: Statistics Finland, Eurosystem and Bank of Finland. 14

15 Current account to remain in surplus Goods and services balance Current account 12 EUR billion month moving total Source: Bank of Finland. 15

16 Inflation in Finland faster than in the euro area 16

17 Energy and food prices have accelerated inflation Energy Processed foods Services Unprocessed foods Non-energy industrial goods Total index 6 Contribution to HICP inflation, % points HICP = Harmonised index of consumer prices Source: Statistics Finland. 17

18 Forecast: Inflation to ease back to close to 2% Harmonised index of consumer prices, Finland Harmonised index of consumer prices, euro area 6 % change on previous year Sources: Statistics Finland, Eurostat and Bank of Finland. 18

19 Food and services prices to rise faster in Finland HICP inflation April 2011 Finland Euro area Energy 1,2 1,3 Services 1,1 0,8 Food incl. alcohol and tobacco 0,9 0,4 Non-energy industrial goods 0,2 0,3 Total 3,4 2,8 19

20 Public finances to face sizeable challenges 20

21 Long-term implications of the recession to be reflected in public finances Central and local government revenue and expenditure Revenue Expenditure 110 EUR billion Sources: Statistics Finland and Bank of Finland. 21

22 Public debt accumulation to continue General government EMU-debt Central government debt 60 % of GDP Sources: Statistics Finland, State Treasury and Bank of Finland. 22

23 Central government indebtedness to remain on a sharp uptrend Central government debt (right-hand scale) Old-age dependency ratio (left-hand scale) 0.5 % of GDP Sources: Statistics Finland, State Treasury and Bank of Finland. 0 23

24 Fiscal consolidation Predictable and credible fiscal policy is needed A long-term plan for fiscal consolidation Rules-based approaches, such as limits for appropriations in budget policy, ensure a long-term perspective Targets coordinated at EU level and internationally agreed procedures are of key importance Both structural reforms and reassessment of expenditure and revenue are necessary 24

25 Decisions are always made under uncertainty Uncertainty argues for prompt decisions If prompt action is taken Positive surprises Public debt will decline, with room for manoeuvre to react to future crises No positive surprises Possible to avoid emergency measures to restore public finances Prompt action makes it possible to avoid the risk of emergency 25

26 Alternative scenario: Domestic wage and price pressures to strengthen 26

27 Wage/price spiral to dampen economic growth Compensation per employee, % change 3,4 4,1 4,3 Change relative to the forecast 0,4 0,9 1,1 Private consumption deflator, % change 3,4 2,9 2,5 Change relative to the forecast 0,2 0,8 0,5 Real GDP, % change 3,7 2,0 1,8 Change relative to the forecast -0,1-0,6-0,6 Unemployment rate, % 7,9 7,8 7,8 Change relative to the forecast 0,0 0,4 0,8 27

28 Threatening spiral of wages and prices The round of wage negotiations before the recession led to a clearly higher rise in wage costs than the euro area average Unit labour costs rose in Finland by 5% relative to the euro area average, from 2007 to 2010 Inflation in Finland has risen faster than in the euro area A new spiral of rising wages and prices would increase the threat of a painful process of adjustment in the years ahead Wage formation needs flexibility at corporate and workplace level and coordination at macro level 28

29 Thank you! 29