SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Economic outlook for 2012–2014 Euro & talous (Bank of Finland Bulletin) 3/2012 Governor Erkki Liikanen Erkki Liikanen 14.6.2012 1
Mar 31, 2015
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 1
Economic outlook for 2012–2014
Euro & talous (Bank of Finland Bulletin) 3/2012
Governor
Erkki Liikanen
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 2
Growth outlook subdued
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 3
Finnish economy will grow slowly
14.6.2012
-10
-5
0
5
10
100
120
140
160
180
2000 2002 2004 2006 2008 2010 2012 2014
% change on previous year (right-hand scale)
At reference year (2000) prices (left-hand scale)
EUR billion %
Sources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 4
Growth dependent on domestic demand
14.6.2012
-10
-5
0
5
10
2006 2008 2010 2012 2014
Net exports Private consumption
Public sector demand Private investment
Inventory change andstatistical 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 2012–2014 are forecasts.Sources: Statistics Finland and Bank of Finland.
% points
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 5
2011* 2010 2011 2012f 2013f 2014f
EUR billion Volume, % change on previous year
GDP 191,6 3,7 2,9 1,5 1,2 1,6
December forecast 2,8 0,4 1,8
Change 0,1 1,1 -0,6
Imports 75,9 7,7 0,1 1,8 5,3 5,2
Exports 74,9 7,8 -0,8 2,2 5,1 5,2
Private consumption 105,3 3,0 3,3 1,4 1,3 1,6
Public consumption 45,7 0,2 0,8 1,1 0,2 0,4
Private investment 31,9 4,1 5,0 1,5 3,3 3,5
Public investment 4,8 -6,7 2,4 0,2 0,6 0,6
Supply and demand
* At current prices, EUR billion.The data on 2011 are Statistics Finland’s advance data; more precise National Accounts data will be published on 12 July 2012.
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 6
Employment growth comes to a halt
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 7
No improvement in employment in immediate years ahead
14.6.2012
4
6
8
10
12
2200
2300
2400
2500
2600
2004 2006 2008 2010 2012 2014
Employed (left-hand scale)
Unemployment rate (right-hand scale)
1,000 persons %
Bank of Finland's seasonally adjusted figuresSources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 8
New jobs in service sectors
14.6.2012
-40 -20 0 20 40
2009 2010 2011
Source: Statistics Finland.
Change from previous year, 1,000 persons
Sectoral changes in employment
Manufacturing and other industrial activities
Construction
Trade, transportation and storage,accommodation and food service activities
Agriculture, forestry and fishing, mining and quarrying
Public administration, education, health care and social services
Other activities
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 9
Slower productivity growth
14.6.2012
-6
-4
-2
0
2
4
6
1995 2000 2005 2010
GDP/hour worked
GDP/person employed
% change on previous year
Sources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 10
Labour costs increase substantially
14.6.2012
-6
-4
-2
0
2
4
6
8
10
2004 2006 2008 2010 2012 2014
Compensation per employee
Unit labour costs
Productivity per person employed
Sources: Statistics Finland and Bank of Finland.
% change on previous year
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 11
Household demand fading, exports gradually picking up
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 12
Household savings falling
14.6.2012
-4
-2
0
2
4
6
2004 2006 2008 2010 2012 2014
%
Savings ratio
Real disposable household income**
Private consumption**
* Households and non-profit institutions serving households** % change on previous yearSources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 13
Investment growing slowly
14.6.2012
10
15
20
25
30
35
-20
-10
0
10
20
30
2006 2007 2008 2009 2010 2011 2012 2013 2014
Private investment (left-hand scale)Private investment excl. housing (left-hand scale)Housing (left-hand scale)Private investment, at reference year (2000) prices (right-hand scale)
% change on previous year EUR billion
Sources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 14
World trade growth supports exports
14.6.2012
70
80
90
100
110
120
130
140
2007 2008 2009 2010 2011 2012 2013 2014
Exports of goods and services Finland's export markets
Index, 2007/I = 100
Sources: Statistics Finland, Eurosystem and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 15
Market share of Finnish goods exports contracted sharply
14.6.2012
60
70
80
90
100
110
120
1999 2001 2003 2005 2007 2009
Finland Sweden Germany
Sources: Comtrade and calculations by the Bank of Finland.
Index, 1999 = 100
Market shares of Finland, Sweden and Germany
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 16
Services exports narrowly based
14.6.2012
0
2
4
6
8
10
12
14
2002 2004 2006 2008 2010
Manufacture of radios, TVs and data communications equipmentOther industryNon-industrial sectors
EUR billion
Source: Statistics Finland.
Other services exports by sector
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 17
Current account to remain in deficit
14.6.2012
-8
-4
0
4
8
12
1980 1985 1990 1995 2000 2005 2010
Current account Goods and services account*
* National Accounts.Sources: Statistics Finland and Bank of Finland.
% of GDP
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 18
Inflation to gradually slow
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 19
Inflation driven by service and food prices
14.6.2012
-2
0
2
4
6
2006 2007 2008 2009 2010 2011 2012
Services Non-energy industrial goods
Processed food Unprocessed food
Energy Total index
HICP = Harmonised index of consumer pricesSource: Statistics Finland.
Contribution to HICP inflation, % points
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 20
Increases in indirect taxes push up the price level
14.6.2012
0
1
2
3
4
5
2006 2008 2010 2012 2014
HICP HICP at constant tax rates
% change on previous year
HICP = Harmonised index of consumer pricesSources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 21
Fiscal policy tightening will strengthen public finances
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
General government balance improves
2214.6.2012
-8
-6
-4
-2
0
2
4
6
8
2000 2002 2004 2006 2008 2010 2012 2014
% of GDP
Local government Central government
Social security funds General government
Sources: Statistics Finland and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Central government debt ratio stabilizes
2314.6.2012
0
10
20
30
40
50
60
70
80
90
1990 1995 2000 2005 2010 2015
General government EDP debtCentral and local government debtCentral government debt
% of GDP
Sources: Statistics Finland, State Treasury and Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Public expenditure share of GDP remains high
2414.6.2012
40
42
44
46
48
50
52
54
56
58
1995 2000 2005 2010
Primary expenditure, % of potential GDPPrimary expenditure, % of GDPTotal tax ratio, % of GDP
% of GDP
Sources: Statistics Finland and calculations by the Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 25
Restructuring of the economy and the long-term outlook for growth
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 26
Labour productivity is vital to growth
14.6.2012
-10
-8
-6
-4
-2
0
2
4
6
8
1976 1980 1984 1988 1992 1996 2000 2004 2008
Capital intensity Labour input
Total factor productivity GDP, % change
Sources: Statistics Finland and calculations by the Bank of Finland.
% points
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 27
Population ageing and growth of service sectors will slow long-term growth
14.6.2012
0 0.5 1 1.5 2 2.5
Growth 2023–2032
Labour input
Production structure
Sectors’ productivity
Growth 2013–2022
Labour input
Production structure
Sectors’ productivity
Growth 2003–2012
0,2
1,5
-0,2
-0,4
1,9
-0,1
1,3
-0,1
0,0
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 28
How can we avoid the imbalances threatening the economy?
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Current account has weakened during the last decade
14.6.2012 29
-8
-6
-4
-2
0
2
4
6
8
10
1950 1960 1970 1980 1990 2000 2010
% of GDP
Sources: Bank of Finland and Statistics Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Import prices up relative to export prices
14.6.2012 30
80
90
100
110
120
130
140
1995 1997 1999 2001 2003 2005 2007 2009 2011
Export prices Import prices Terms of trade
Index, 2005 = 100.
Source: Statistics Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Key export sectors declined
14.6.2012 31
0
1
2
3
4
5
6
1975 1985 1995 2005
Paper industry Electronics industry
Share of GDP, %
Source: Statistics Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Steep rise in Finnish unit labour costs in 2008-9
14.6.2012 32
90
100
110
120
130
140
1999 2001 2003 2005 2007 2009 2011
UK Netherlands Euro area GermanyFrance Finland Sweden
Unit labor costs, index, 1999 = 100
Seasonally adjusted. Source: European Central Bank.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen
Finnish households moved deeper into debt
14.6.2012 33
-20
-10
0
10
20
30
40
GDP, volume Private consumption, volume
Residential investment, volume
Household loans
Finland Euro area
Sources: Eurostat and EuropeanCentral Bank.
Change between years 2007 and 2011, %
26062
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 34
How the imbalances can be avoided
¨ Continued consolidation of public finances
¨ Lengthening working careers and other structural reforms to strengthen potential output
¨ Controlling the increase in household debt
¨ Ensuring cost-competitiveness
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 35
Bank of Finland Bulletin Economic Outlook 3/2012 Articles:
¨ Assessing the Finnish house price development with various measures
-Jarkko Kivistö
¨ Market share of Finnish goods exports contracted sharply in the 2000s
-Seppo Orjasniemi and Terhi Ravaska
¨ The long-term growth forecast for the Finnish economy-Helvi Kinnunen, Petri Mäki-Fränti,
Elisa Newby, Seppo Orjasniemi andJukka Railavo
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 36
Thank you!
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 37
Alternative scenario: Households strengthen their financial position by
adjusting demand
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 38
Savings ratio rises to long-run average level
14.6.2012
-4
-2
0
2
4
6
8
10
1975 1985 1995 2005
Forecast Alternative scenario Average 1975–2011
%
Households and non-profit institutions serving households.Sources: Statistics Finland and calculations by the Bank of Finland.
Household savings ratio 1975–2014
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 39
Also a decline in housing investment
14.6.2012
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014
Savings ratio Investment ratio
Alternative scenario Alternative scenario
% of GDP
Households and non-profit institutions serving households.Sources: Statistics Finland and calculations by the Bank of Finland.
Households’ gross savings and investment ratios
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 40
Improved financial balance in household sector would weaken growth and public finances
2011 2012 2013 2014
GDP, % change 2.9 1.3 0.5 1.5
Difference -0.2 -0.7 -0.1
Private consumption, % change 3.3 1.0 -0.2 0.8
Difference -0.4 -1.5 -0.8
Household savings ratio, % of disposable income 1.7 1.5 1.6 2.0
Difference 0.2 1.3 2.1
Current account, % of GDP -0.7 -0.6 -0.3 0.1
Difference 0.1 0.6 1.0
Net lending by public sector, % of GDP -0.9 -1.0 -0.7 -0.8
Difference -0.2 -0.5 -0.9
14.6.2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLANDErkki Liikanen 41
Household indebtedness and interest burden in Finland
14.6.2012
0
2
4
6
8
10
12
0
20
40
60
80
100
120
1987 1992 1997 2002 2007
Loan stock (left-hand scale)Share of housing corporations' loan stock (left-hand scale)Interest expenditure (right-hand scale)
% of disposable income % of disposable income
Sources: Statistics Finland and Bank of Finland calculations.