Economic Outlook 2015-2017

Juha Kilponen

1Julkinen

Suomen Pankki

Economic Outlook 2015-2017

Euro & talous 10 December 2015

Suomen Pankki – Finlands Bank – Bank of FinlandJuha Kilponen Julkinen

Economic situation for Finland continues to be difficult

Economic growth in Finland will be among the weakest in the euro area in the forecast period

Finland’s export market dynamics weaker than previously forecast

Productivity growth will remain very slow, with no improvement in competitiveness

No significant correction in the general government balance

2

Suomen Pankki – Finlands Bank – Bank of FinlandJuha Kilponen 3Julkinen

Growth will remain subdued

Real GDP, %

December June2014f: -0.4 -0.12015f: -0.1 0.22016f: 0.7 1.22017f: 1.0 1.3

-10

-5

0

5

10

120

140

160

180

200

220

1999 2002 2005 2008 2011 2014 2017

% change on previous year (right-hand scale)

At reference year (2010) prices (left-hand scale)

EUR bn %

Sources: Statistics Finland and Bank of Finland.

10 Dec 2015bofbulletin.fi

Real GDP


Euro area growth broadly based; Finland will fall behind

Real GDP, %

Finland (BoF) Euro area (ECB)

2014: -0.4 0.92015f: -0.1 1.52016f: 0.7 1.72017f: 1.0 1.9

90

100

110

120

130

140

1999 2004 2009 2014

Finland Euro area

Index, 1999Q1 = 100

Real, GDP

Forecasts: Bank of Finland (Finland) and European Central Bank ( euro area).Sources: Statistics Finland, Eurostat, Bank of Finland and ECB32353


Frail growth dependent on domestic demand

-4

-2

0

2

4

6

2011 2012 2013 2014 2015 2016 2017

Net exports Private consumption

Public sector demand Private investment

Inventory change and statistical discrepancies

% change in GDP volume

The chart is merely indicative. The GDP growth contribution of each demanditem has been calculated on the basis of its volume growth and its value share in the previous year. The figures for 2015–2017 are forecasts.Sources: Statistics Finland and Bank of Finland.


Contributions to growth, components of aggregate demand

% points


Real income growth will sustain consumption

Real private consumption, %

December June

2014: 0.5 -0.22015f: 0.5 0.22016f: 0.6 0.42017f: 0.6 0.7

-4

-2

0

2

4

6

2010 2012 2014 2016

%

Savings ratio Housholds' real disposable income*Real private consumption*

Households = households and non-profit institutions serving households.* % change from previous yearSources: Statistics Finland and Bank of Finland.


Household's disposable income, consumption and savings


Investment recovers slowly– investment rate remains low

Private investment, %

December June

2014: -3.9 -6.52015f: -1.1 -2.52016f: 3.3 2.72017f: 2.8 2.2

80

90

100

110

120

130

140

2000 2005 2010 2015

Private investment

Private investment excl. housing construction

Housing construction

Index, 2000 = 100


10 December 2015bofbulletin.fi

Slight upturn of investments


What explains investment growth?

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

2011 2012 2013 2014 2015 2016 2017

Financing Fiscal policy Domestic demandMonetary policy Foreign factors Price marginsProductivity Other Private investement, %

%, trend deviation

Source: Bank of Finland calculations.


Foreign trade and external balance

Suomen Pankki – Finlands Bank – Bank of FinlandJuha Kilponen Julkinen

The recovery of exports delayed

10

Exports, % December June

2014: -0.7 -0.42015f: 0.1 0.62016f: 2.1 3.32017f: 2.7 4.0

80

90

100

110

120

130

2007 2009 2011 2013 2015 2017

Exports Imports Export marketsIndex, 2007 = 100

Source: Statistics Finland and Bank of Finland.


Developments in Finnish exports, imports andexport markets


Forest industry still one of the pillars of foreign trade

-2 500

-2 000

-1 500

-1 000

-500

500

1 000

1 500

2 000

2 500

1989 1994 1999 2004 2009 2014

EUR million per month

Converted into 2014 euros using the GDP deflator; data-smoothing by the HP filter.Sources: Finnish Customs and calculations by the Bank of Finland.

10 December 2015bofbulletin.fi

Finland's trade balance by goods category

Wood and paper products

Computers and electronic equipment

Machinery and equipmentBasic metals and metal products

Refined oil products

Crude oil and natural gas

Other

Metallic minerals

FoodsTransport equipment


Labour market


Labour market decline bottomed out

Unemployment rate, %

December June2014f: 8.7 8.72015f: 9.4 9.12016f: 9.2 8.92017f: 9.1 8.6

4

6

8

10

12

2 200

2 300

2 400

2 500

2 600

2005 2010 2015

Number of employed (left-hand scale)Unemployment rate (right-hand scale)

1,000 persons %



Unemployment and employed population, trend


Wages and prices


Inflation sluggish

HICP, % December June

2014: 1.2 1.22015f: -0.1 0.22016f: 0.3 1.02017f: 1.0 1.5

-2

-1

0

1

2

3

4

5

2008 2010 2012 2014 2016 2018

FoodstuffsEnergyServices and industrial goods excl. energyInflation

Sources: Statistics Finland and Bank of Finland.10 Dec 2015bofbulletin.fi

Components of HICP inflation


Differences in Finnish and euro area inflation partly explained by increases in indirect taxation

-1

0

1

2

3

4

2005 2007 2009 2011 2013 2015

Finland Euro areaCumulative effect of changes in taxation on the consumer price index since 2005, %

Source: European Central Bank.10 Dec 2015bofbulletin.fi


Slow growth in wages and labour productivity

Compensation per employee and productivity, %

Compensation per employee Productivity

2014: 1.4 0.02015f: 1.8 0.22016f: 1.4 0.32017f: 1.5 0.5

-6

-4

-2

0

2

4

6

8

10

2003 2005 2007 2009 2011 2013 2015 2017

Compensation per employeeUnit labour costsProductivity per person employed



Productivity and wage developments

Prosenttimuutos edellisestä vuodesta


Public finances


Public finances will barely improve

-8

-6

-4

-2

0

2

4

6

8

1999 2004 2009 2014

Social security fundsCentral government and local governmentTotal general government

General government net lending



% of GDP


Debt will continue to grow at a rapid pace – debt ratio will exceed 68%

Debt ratio, %

December June

2014: 59.3 59.32015f: 62.8 62.52016f: 65.7 65.12017f: 68.1 67.3

40

42

44

46

48

0

20

40

60

80

1999 2004 2009 2014

General government EDP debt (left-hand scale)Total tax ratio (right-hand scale)

% of GDP

Sources: Statistics Finland, State Treasury and Bank of Finland.


General government debt and total tax ratio

%


Risks and alternative scenario


Forecast risks more on the downside

[-] Uncertainties in the global economy

[+] Euro area demand may recover faster than expected

[-] In the domestic economy, the main risks relate to economic policy and the labour market

Alternative scenario: Finnish exports fall further behind export markets


Forecast summary

Forecast summary

Percentage change on previous year2014 2015f 2016f 2017f 2014 2015f 2016f 2017f

Gross domestic product -0.4 -0.1 0.7 1.0 Labour market

Private consumption 0.5 0.5 0.6 0.6 Hours worked -0.7 0.1 0.5 0.5

Public consumption -0.2 -0.1 0.6 0.6 Total employment -0.4 -0.3 0.4 0.4

Private fixed investment -3.9 -1.1 3.3 2.8 Unemployment rate, % 8.7 9.4 9.2 9.1

Public fixed investment -0.9 -2.3 1.3 1.4 Unit labour costs 1.4 1.7 1.1 1.0

Exports -0.7 0.1 2.1 2.7 Compensation per employee 1.4 1.8 1.4 1.5

Imports 0.0 -2.8 3.2 2.8 Productivity 0.0 0.2 0.3 0.5

Contributions to growth

Domestic demand -0.5 0.0 1.1 1.0 Gross domestic product deflator 1.6 0.5 1.0 1.0

Net exports -0.3 1.1 -0.4 0.0 Private consumption deflator 1.6 0.2 0.4 1.0

Inventory change + statistical discrepancy 0.4 -1.2 0.1 0.0

Household saving ratio, % -0.3 0.1 0.6 0.7 Harmonised index of consumer prices 1.2 -0.1 0.3 1.0Excluding energy 1.5 0.3 0.5 0.8

Current account, % of GDP -0.9 -0.1 -0.2 -0.3 Energy -1.7 -5.8 -1.8 3.6

f = forecastSources: Statistics Finland and Bank of Finland.


Thank you

Economic Outlook 2015-2017

Economy & Finance

Transcript of Economic Outlook 2015-2017