Economic Outlook for Europe and Finland

Transcription

1 Economic Outlook for Europe and Finland Finnish-British Chamber of Commerce 15 March 213 Seppo Honkapohja Member of the Board Bank of Finland 1

2 World economy: World industrial output improved, but international trade decreased slightly in the end of 212 World trade World industrial output (excl. construction) 125 Index, 27 = 1 The Bank of Finland forecast for the world gdp: : 3,2 % 214: 3,7 % 215: 3,8% 15 1 The Bank of Finland forecast for the world trade: : 4 % : 5,7 % 215: 6,3 % Source: CPB. The volume of world trade decreased,5% in December 212, following a revised increase of,7% in November (CPB World Trade Monitor) 2

3 Bank of Finland forecast: GDP and world trade growth (% change from previous year) f 213f 214f 215f USA 1,8 2,2 1,8 2,4 2,8 EU2 1,4 -,4 -,4 1,1 1,5 Japan -,5 1,9 1,1 1,7 1, China 9,2 7,8 8, 7, 7, Russia 4,3 3,4 3,4 3,4 3, World 3,8 3,1 3,2 3,6 3,8 World trade 6,2 3,3 3,8 5,7 6,3 EU2 = Euroarea, Sweden, Denmark and UK f = forecast 3

4 Industrial production weak in main advanced economies Industrial production United States Japan European Union United Kingdom 4 Percentage change from previous year Sources: ECB and Bloomberg. 2675@Chart2 4

5 Purchasing managers index in manufacturing PMI manufacturing United States Japan Euro area United Kingdom 65 Index, 5 = no change on previous month Sources: Markit and ISM. 2675@Chart3 5

6 Price of crude oil coming down USD/barrel EUR/barrel 16 USD, EUR Brent, spot prices Source: Bloomberg. 6

7 Consumer confidence United States Japan European union United Kingdom 6 Index 28= Source: European Commision, Conference Board and OECD. 2675@Chart4_index 7

8 Monetary policy: low interest rates and widely used quantitative easing 6 US fed funds target rate Uncollateralized overnight call rate, Japan United Kingdom: repo rate Sweden: Repo rate Eurosystem: minimun bid rate in the main refinancing operations % Source: Bloomberg. 8

9 Exchange rates: depreciation of Yen has been the main change recently 1,6 1,5 1,4 1,3 1,2 1,1 1,9,8,7,6 Euro exhange rate against USD Euro exhange rate against GBP Euro exhange rate against JPY (right scale) Source: ECB. per USD, JPY, GBP

10 Structure of growth in China changing from investment to consumption China gdp growth and growth contributions Net exports Investments Consumption GDP % Forecasts Bank of Finland forecast for China s gdp growth rates are: 213: 8 % 214: 7 % 215: 7 % Sources: CEIC, BOFIT. 1

11 China s current account surplus is diminishing 12 % of GDP Forecasts Lähde: Macrobond. 11

12 Finnish economy at a standstill 12

13 Finland: GDP growth halted GDP at market prices 115 Index, 25 = Source: Statistics Finland

14 Finland: Domestic demand weakened Manufacturing output and exports of goods New building construction and retail trade 14 Manufacturing output Volume index, 25 = 1 Exports of goods, volume 4 New-build construction, all buildings (left-hand scale) Real retail trade* (right-hand scale) % change on previous year 8 % Figures are seasonally adjusted. Sources: Statistics Finland and National Board of Customs. Seasonally adjusted data *3-month moving average. Sources: Statistics Finland and Bank of Finland. 14

15 Finnish GDP growth: estimate at -.2% in 212, growth outlook very weak GDP: % change on previous year (right-hand scale) GDP at reference year (2) prices (left-hand scale) 18 EUR billion % Sources: Statistics Finland and Bank of Finland. 15

16 Slow growth will push up unemployment in Finland Employed (left-hand scale) 2,6 Unemployment rate (right-hand scale) 1, persons % 12 2,5 1 2,4 8 2,3 6 2, Sources: Statistics Finland and Bank of Finland.

17 Labour costs have risen in Finland Compensation per employee Unit labour costs 1 Productivity per person employed % change on previous year Sources: Statistics Finland and Bank of Finland. 17

18 Inflation will slow down in Finland despite increases in indirect taxation HICP HICP at constant tax rates 5 % change on previous year HICP = Harmonised index of consumer prices Sources: Statistics Finland and Bank of Finland. 18

19 In Finland weak outlook for exports and domestic demand 19

20 Finland: Key export industries in decline 6 Paper industry Share of GDP, % Electronics industry Source: Statistics Finland

21 Competitiveness in Finland weaker than manufacturing unit labour costs suggest Manufacturing Change 1999Q1-212Q2, % Volume of production Value of production Finland Euro area Unit labor costs Labor costs per value of production Source: Eurostat. Production is gross value added. 21

22 Finland: Export growth weak Exports of goods and services Finland's export markets 14 Index, 27Q1 = Sources: Statistics Finland, Eurosystem and Bank of Finland. 22

23 Finland: Investments at a standstill 3 Private investment (left-hand scale) Private investment excl. housing (left-hand scale) Housing (left-hand scale) Private investment at reference year (2) prices (right-hand scale) % change on previous year EUR billion Sources: Statistics Finland and Bank of Finland. 1 23

24 Weak consumption growth in Finland, savings rate lower than forecast (-.3%) in % Savings ratio Real disposable household income* Private consumption* Households = households and non-profit institutions serving households * % change on previous year Sources: Statistics Finland and Bank of Finland. 24

25 Current account remains in deficit Current account Goods and services account* 12 % of GDP * National Accounts Sources: Statistics Finland and Bank of Finland. 25

26 Situation of the open sector must be taken into account in pay agreements of the Finnish labour market Exports developed weakly, outlook still weak. Background: Sluggish international growth Special problems of electronics and paper industries Growth in labour costs Export success, open sector employment and the foreign trade balance all require that the competitiveness of the open sector is strengthened. 26

27 Finnish public finances 27

28 Central and local government deficit to contract slightly Financial balance (right-hand scale) Central government financial balance (right-hand scale) Revenue (left-hand scale) Expenditure (left-hand scale) % of GDP % of GDP Sources: Statistics Finland and Bank of Finland

29 Trend in the public debt ratio will not reverse in Finland without additional measures General government EDP debt Central government debt Central and local government debt 9 % BKT:stä Sources: Statistics Finland, State Treasury and Bank of Finland. 29

30 Sustainability problem in Finland is substantial Need for public finance adjustment measured in terms of total tax rate Increased immigration Improved productivity Baseline 52 % of GDP Sources: Statistics Finland and Bank of Finland. 3

31 Finnish fiscal situation: Summary The need for adjustment in the public finances is already substantial in the present decade. Long-term sustainability of public finances cannot be achieved without structural measures. 31