Central bank downgrades growth forecast

The country’s economic boom is over and growth is temporarily losing momentum amidst weaker global economic activity, states the Bank of Finland in its latest outlook published on Tuesday.

“However, there is still potential for continued economic growth.” Purchasing power is increasing and households are able to spend more, said the central bank’s press release.

The monetary policy stance remains accommodative. “Growth has still been reasonably good in the current year, but there are clear signs the pace is slowing,” Bank of Finland Head of Forecasting Meri Obstbaum TOLD the press AT A BRIEFING held on the occasion of publication of the latest issue of the journal Euro & Talous. “Household and business confidence in the future is faltering,” Obstbaum added.

The Bank of Finland on Tuesday published its economic forecast for 2019-2022. According to the forecast, Finland’s economic growth will slow down to less than 1% in 2020. The GDP growth will pick up to 1.1% in 2021 and to 1.3% in 2022.

The slower economic growth in Finland will stem from the continued sluggishness of the economy, both globally and in the euro area. Uncertainties in the global economy will have a negative impact on exports and investments of Finnish companies. The forecast projects subdued growth for exports in 2020, while investments will remain muted. However, both the Euro Area economy and the global economy will gradually recover in 2021-2022 and will stimulate the Finnish economy, too. Demand for Finnish exports will strengthen towards the end of the forecast horizon.

According to the forecast, “Consumer confidence has declined steeply. Household consumption in 2019 will grow only moderately relative to the increase in purchasing power.” Towards the end of the forecast horizon, consumption growth is forecast to catch up with the pace of growth in purchasing power. The household savings rate will remain higher than that in previous years.

The slower economic growth will be reflected on the labour market. In 2020, the downward trend in the unemployment rate will come to a halt temporarily, and employment will not grow noticeably. Unemployment will, however, remain lower than in recent years. Problems of mismatch between vacant jobs and jobseekers will continue to prevail in many sectors and regions.

The public finances will be affected by the contraction in the working-age population and the economic implications of demographic ageing. In 2020, the general government deficit relative to GDP will deepen to 1.5% and public debt relative to GDP will begin to grow.

The continued fragility of the euro area economy and global economic uncertainties – such as trade disputes, Brexit and China’s economic problems – will cast a shadow over the outlook for the Finnish economy and exports. However, there is still potential for continued economic growth.