Economic growth forecasts downgraded for next year

The Ministry of Finance on Friday upgraded forecasts for the country's economic growth this year but downgraded the forecasts for the next year.

The economic growth of the country to accelerate to 3.0% this year. In the following years, however, Finland’s economic growth will slow to just over 1.5%, said the economic survey of the ministry published on Friday, according to an official press release.

Finland’s economy will grow by 1.7% in 2019 and by 1.6% in 2020. Investment will continue to support economic growth, even though construction investment will decline next year, said the survey report.

Growth in exports will level off in line with growth in world trade, and economic growth will no longer be supported by net exports as strongly as before. Household consumption demand will be constrained by the fact that real disposable income will not grow at the same pace as before. Over the medium term, in 2021–2022, the economy is expected to grow by 1% per year, corresponding to the growth rate of potential output.

“The economy is now pushing ahead at the peak of the economic cycle. Employment is growing rapidly, and general government finances are strengthening. In the next few years, however, we should prepare for significantly more subdued conditions. Action to free up existing resources in society to full use must continue,” said Mikko Spolander, Director General of the Economics Department.

In the early part of 2018, the rate of employment growth has even been faster than could be assumed on the basis of economic activity. There are currently more people in employment than ever before. In June, the employment trend exceeded its previous record level, seen at the cyclical peak in 2008, and reached 71.8%. Continued strong economic growth will increase the number of employed people by 2.6% this year compared with a year earlier. Despite the slowdown in economic growth, growth of employment will continue throughout the outlook period and the employment rate will rise to 73% in 2020.

In 2019, the highest phase of investment will have passed and economic growth will slow. Construction investment is expected to contract in the next few years, because housing production has risen to an exceptionally high level, said the report.

The number of building permits granted has fallen compared with last year. Private investment growth will continue to be reasonable, however. There are several very extensive investment projects being planned in Finland, particularly in the forest industry. It is assumed that these will support the development of investment during the outlook period.