Economic Outlook of Finland Pentti Hakkarainen Deputy Governor 9 June 2011 1
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Heading for stable monetary conditions 1865 1999 MARKKA joins silver standard EURO taken into use 3
Two roles of the Bank of Finland Finland s monetary authority Member of the Eurosystem 4
Organisation Parliamentary Supervisory Council Financial Supervisory Authority General Secretariat Administration Internal Audit Board Monetary Policy and Research Financial Markets and Statistics Banking Operations Currency 5
Bank of Finland Fourth oldest central bank in the world Established in Turku in 1811, moved to Helsinki in 1819 The Bank of Finland employs about 450 staff; the Financial Supervisory Authority about 210 Regional offices in Tampere, Kuopio, Oulu and Vantaa 6
Bank of Finland s four core functions Monetary policy and research Financial system oversight Banking operations Cash supply 7
Monetary policy Monetary policy objective: price stability The Bank of Finland participates in the preparation, decisionmaking and implementation of Eurosystem monetary policy The Governor of the Bank of Finland, as a member of the ECB s Governing Council, is one of those deciding on euro area monetary policy 8
Monetary policy In addition to monetary policy decision-making, the Bank of Finland takes part in domestic debate on economic policy Underlying the Bank of Finland s expert role is internationally-recognised high-level research Priorities of research: 1) Monetary policy modelling 2) The outlook for the financial services sector 3) Russian and Chinese economies The Bank s macroeconomic forecast is published twice a year 9
Financial supervision The Bank of Finland monitors the financial system as a whole The objective is to maintain stable, reliable and effective financial and payment systems in Finland The Financial Supervisory Authority (FIN-FSA), operating in connection with the Bank of Finland, supervises individual banks and insurance companies The financial crisis has prompted development of common euro area and EU supervisory frameworks 10
Banking operations The Bank of Finland is the bank of banks With responsibility for Implementing Eurosystem monetary policy in Finland Securing the banking system s liquidity Transmitting large-value payments between banks 11
Cash supply Exclusive right to issue cash in Finland Responsibility for ensuring the fitness and authenticity of cash in circulation 12
From 1 Jan 2011 the euro area will cover 17 countries Austria Belgium Cyprus Estonia Finland France Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovakia Slovenia Spain 13
Decision-making 14
ECB Governing Council Jürgen Stark Miguel Fernández Ordóñez 15
Eurosystem objectives and principles Price stability is the primary objective of the monetary policy The aim is to keep annual euro area inflation at rates of below, but close to, 2% over the medium term Support for general economic policy Support is lent to stable and sustainable growth and employment, without prejudice to the objective of price stability The principles of the Eurosystem are independence, accountability and transparency 16
Both business and consumer confidence at fairly high levels 40 20 0-20 -40-60 Balance, s.a. Industrial confidence indicator Construction confidence indicator 30 20 10 0-10 -20 Consumer confidence indicator Balance Consumer confidence indicator Consumer perceptions of own finances Consumer perceptions of the Finnish economy -80 2005 2006 2007 2008 2009 2010 2011 Source: European Commission -30 1997 1999 2001 2003 2005 2007 2009 2011 Source: Statistics Finland. 17
Robust GDP growth in 2010 Monthly index GDP 130 Volume index, 2000 =100 125 120 115 110 105 2005 2007 2009 2011 Sources: Statistics Finland and Bank of Finland. 18
Growth moderating in domestic markets 120 115 110 105 100 95 90 85 80 75 70 Retail trade Private consumption Index, 2005 = 100 2000 2002 2004 2006 2008 2010 Source: Statistics Finland. All buildings Residential buildings Industrial buildings All buildings excl. residential buildings Index, 2005 = 100 200 180 160 140 120 100 80 60 40 2005 2006 2007 2008 2009 2010 2011 Source: Statistics Finland. 19
World demand supports exports 140 Manufacturing output Volume index, 2005 = 100 Exports 180 Volume index of industrial output Forest industry Metal industry excl. electrical and electronics industry Electrical and electronics industry Chemical industry Index, 2005 = 100 130 160 120 110 140 100 120 90 100 80 80 70 2005 2006 2007 2008 2009 2010 2011 Figures are seasonally adjusted. Sources: Statistics Finland and National Board of Customs. 60 2006 2008 2010 Seasonally adjusted figures Source: Statistics Finland. 20
Finnish economy recovers strongly % change on previous year (right-hand scale) At reference year (2000) prices (left-hand scale) 180 EUR billion % 10 160 5 140 0 120-5 100 2000 2002 2004 2006 2008 2010 2012 Sources: Statistics Finland and Bank of Finland. -10 21
Domestic demand supporting growth 10 % points Net exports Public sector demand Inventory change and statistical discrepancies Private consumption Private investment % change in GDP volume 5 0-5 -10 2006 2007 2008 2009 2010 2011 2012 2013 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 2011 2013 are forecasts. Sources: Statistics Finland and Bank of Finland. 22
Supply and demand 2010 2009 2010 2011f 2012f 2013f At current prices EUR billion Volume, % change on previous year Gross domestic product 180.3-8.2 3.1 3.9 2.7 2.5 Imports 65.2-17.6 2.6 4.2 6.1 7.0 Exports 70.2-20.1 5.1 7.4 5.9 6.5 Private consumption 97.3-2.1 2.6 2,9 2.4 2.0 Public consumption 44.2 1.0 0.4 1.2 0.5 0.8 Private fixed investment 28.5-17.4 0.9 7.1 7.4 7.3 Public investment 4.9 6.2 0.1 1.0 0.7-0.2 23
Unemployment falling, but slowly Employed (left-hand scale) Unemployment rate (right-hand scale) 2 600 1,000 persons % 12.0 2 500 10.0 2 400 8.0 2 300 6.0 2 200 2000 2002 2004 2006 2008 2010 2012 Bank of Finland's seasonally adjusted figures Sources: Statistic Finland and Bank of Finland 4.0 24
Energy and food prices driving inflation Energy Processed foods Services Unprocessed foods Non-energy industrial goods Total index 6 Contribution to HICP inflation, % points 4 2 0-2 2005 2006 2007 2008 2009 2010 2011 HICP = Harmonised index of consumer prices Source: Statistic Finland and Bank of Finland. 25
Public finances remain in deficit General government balance 8 6 4 2 0-2 -4-6 % of GDP General government Central government -8 2000 2002 2004 2006 2008 2010 2012 Sources: Statistics Finland and Bank of Finland. 26
Thank you! 27