Juha Kilponen: Upswing more broadly based – Improved chances for balanced growth in Finland, Helsinki, 18.12.2017

Julkinen

Suomen Pankki

Upswing more broadly based – Improved chances forbalanced growth in Finland18.12.2017

118.12.2017

Juha Kilponen

Suomen Pankki – Finlands Bank – Bank of Finland Julkinen

Overall picture of the economy

Growth has broadened to exports and productivity growth has improved

Current account close to balance in the forecast period

Household debt increases further, situation for other economic sectors improves

Unemployment decreases slowly as supply factors restrict availability of labour

Inflation below euro area average

18.12.2017 Juha Kilponen 2


Key figures for the Finnish economy 2017


f=forecastSources: Bank of Finland and Statistics Finland.


Conditions for continued growth in place

Finland’s export markets growing at a rate of slightly over 4% in the forecast period

Financing conditions remain favourable

Cost-competitiveness has improved

Productivity improved and employment growing, albeit slowly

Confidence indicator and short-term information point to continued growth



GDP growth forecast revised upward


GDP, %December June

2017f 3.1 2.1

2018f 2.5 1.7

2019f 1.6 1.4

2020f 1.4 --f = forecast

-10

-5

0

5

10

140

160

180

200

220

2000 2005 2010 2015 2020

% change on previous year (right-hand scale)At reference year (2010) prices (left-hand scale)

EUR billion %

Sources: Statistics Finland and Bank of Finland.

18 Dec 2017bofbulletin.fi24078 @E&T 3_2017

GDP volume


Inflation remains moderate throughout the forecast period


Inflation, %Finland Euro area

2017f 0.8 1.5

2018f 1.1 1.4

2019f 1.4 1.5

2020f 1.5 1.7f = forecast.

+ 0 %

+ 5 %

+ 10 %

+ 15 %

+ 20 %

+ 25 %

+ 30 %

-1

0

1

2

3

4

5

1999 2002 2005 2008 2011 2014 2017 2020

Price level in Finland (right-hand scale)Inflation in Finland (left-hand scale)Inflation in the euro area (left-hand scale)

Inflation, annual average, % Price level relative to euro area

Sources: Bank of Finland, Eurostat and European Central Bank.18 Dec 2017bofbulletin.fi31705@E&T_5_2017(en)

Inflation and price level relative to euro area


Growth in compensation of employees supports improvement in cost-competitiveness


*Per employee, total economy.f = forecast.Sources: Bank of Finland and Statistics Finland.

Wages, inflation and productivity

Compensation of employees*,

%

Inflation,%

Productivity*,%

2017f -0.6 0.8 2.32018f 1.3 1.1 1.82019f 2.0 1.4 1.12020f 2.8 1.5 1.1


Balance of supply and demand at reference year (2010) prices


% change on previous year 2017f 2018f 2019f 2020f Revision

GDP 3.1 2.5 1.6 1.4

Private consumption 1.9 1.8 1.3 1.0

Public consumption 0.5 0.7 0.1 0.4

Private fixed investment 11.2 5.8 3.2 2.5

Public fixed investment -1.1 3.3 -0.5 -1.2

Exports 8.4 3.8 3.5 3.0

Imports 2.2 3.4 2.9 2.7

f = forecast.Sources: Statistics Finland and Bank of Finland.


Factors underlying investment and export growth

External demand, monetary policy and domestic cost developments have supported investment and export growth

Investment growth strongest in construction

About 2/3 of pick-up in exports in 2015–2017 explained by external factors

Impact of domestic cost factor more moderate during 2015-2017



Finland getting back on track of the global economy


0

50

100

150

200

250

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Global Finland Forecast

Index, 2000 = 100

Sources: Statistics Finland, World Bank and the Bank of Finland forecast.

Value of goods and services exports


Towards more balanced growth?


-3000

-2000

-1000

0

1000

2000

3000

4000

5000

1990 1996 2002 2008 2014 2020

Goods Services Primary incomeCurrent transfers Forecast Current account

EUR million per quarter

Sources: Statistics Finland and the Bank of Finland forecast.

Current account items


…based on corporate sector net lending


-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Non-financial corporations (S11 + S12) General government (S13)Households (S14 + S15) Current accountForecast

EUR million per quarter

Source: Statistics Finland and the Bank of Finland forecast.30219@Vaihtotase_sektorit(en)

Current account and net lending by sector


Households’ willingness to save low


-4

-3

-2

-1

0

1

2

3

4

5

2009 2011 2013 2015 2017 2019

Savings ratio Households’ real disposable income Real private consumption

%

Households = households and non-profit corporations serving households.* % change on previous year.Sources: Statistics Finland and Bank of Finland.18 Dec 2017bofbulletin.fi19912@ET_2017__tulot ja kulutus EN


Slow recovery in labour markets


Employment and unemployment rate

Employment, %

Unemployment, %

2017f 69.3 8.6

2018f 69.9 8.2

2019f 70.4 7.9

2020f 70.7 7.6f = forecast.4

6

8

10

12

64

66

68

70

72

2002 2007 2012 2017

Employment rate, 15–64-year-olds, trend (left-hand scale)Unemployment rate, 15–74-year-olds, trend (right-hand scale)

% %

Sources: Statistics Finland and Bank of Finland (forecasts).218 Dec 2017bofbulletin.fi25192@Työllisyyden muutos trendi


Increase in mismatch problems


50000High structural unemployment

2015M7

2016M8

2017M2

2017M8

2000M1

2008M1

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

150 000 200 000 250 000 300 000 350 000 400 000

Job vacancies

Unemployed jobseekers


Structural unemployment still high

Flows out of unemployment slower since the financial crisis

Unemployment currently close to the structural level

Employment probability is, however, improving


0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

1980 1985 1990 1995 2000 2005 2010 2015

%

Unemployment rate (Ministry of Employment and the Economy)*Structural unemployment (BoF)

Sources: Ministry of Employment and the Economy, Statistics Finland and Bank fo Finland.18 Dec 2017eurojatalous.fi35461@Chart3

*Seasonal adjusted, BoF.


Fiscal policy to ease despite reductionin deficit

General government deficit shrinks by over half-1.8% 2016 → -0.7% 2020

However, cyclically adjusted deficit will increase

Cyclical and structural factors justify tighter fiscal policy in the next few years

Fiscal sustainability gap still around 3%



Less new debt and a drop in the tax ratio


TAX RATIO-2.4 pp

DEBT/GDP-2.3 pp 38.2

34.0 32.7

41.747.1 48.5

53.9 56.560.2

63.6 63.1 61.8 61.3 61.4 60.8

33

36

39

42

45

48

51

54

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 f2017 f2018 f2019 f2020

Debt Total tax ratio (right-hand scale)

% of GDP

18 Dec 2017bofbulletin.fi34005@Chart4

Sources: Statistics Finlad, Bank of Finland (forecasts).

% of GDP

Public debt and total tax ratio


Impact on GDP growth forecast of uncertainty relating to external factors


3.5 %

1.5 %

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

2014 2015 2016 2017 2018 2019 2020

GDP%, annual growth

Sources: European Comission and Bank of Finland.18 Dec 017eurojatalous.fi35463@Chart1


Thank you!


Economy & Finance

Juha Kilponen: Upswing more broadly based – Improved chances for balanced growth in Finland, Helsinki, 18.12.2017