Juha Kilponen: Outlook for the Finnish economy 2016-2019

Unrestricted

Head of Forecasting Division, Bank of Finland

Outlook for the Finnish

economy 2016 - 2019

Juha Kilponen

Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted

Global growth slightly slower

Juha Kilponen

Source: ECB, BMPE projections.

Annual change, % June 2016 December 2016

2016 2017 2018 2019 2016 2017 2018 2019

Global GDP (excl. euro

area) 3.1 3.7 3.8 - 3.0 3.5 3.7 3.8

Global trade (excl. euro

area) 1.8 3.5 4.0 - 0.9 2.8 3.7 3.8

Euro area export

demand 2.0 3.5 4.0 - 1.5 2.5 3.4 3.6


The global economic situation contributes to

the weakening outlook for the Finnish

economy

All other things being equal, the situation in

the global economy would

– Slow GDP growth by 0.2%

– Cause export growth to decelerate by almost 1%

Geopolitical factors pose a downside risk to

the forecast

Uncertainty exceptionally high

Juha Kilponen


BUT

Juha Kilponen


Positive news from the domestic

economy

The labour market has strengthened

The downtrend in industrial output has bottomed out

Competitiveness Pact improving competitiveness, monetary policy supporting growth

Confidence in the economy has improved

Juha Kilponen

60

70

80

90

100

110

120

130

2011 2012 2013 2014 2015 2016

Indicator

Sources: European Commission and calculations by the Bank of Finland.30384@Koko talouden luottamus (EN)

Macroeconomic confidence IndicatorGrowth threshold and 90% confidence interval


Long recession receding

Juha Kilponen

GDP, %

June Dec.

2016f 1.1 1.0

2017f 1.1 1.3

2018f 1.0 1.2

2019f 1.2-10

-5

0

5

10

140

160

180

200

220

2000 2005 2010 2015

% change on previous year (right-hand scale)

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

EUR billion %

Sources: Statistics Finland and Bank of Finland.

13 Dec 2016bofbulletin.fi24078 @E&T 5_2016

GDP volume


Balance of supply and demand

Juha Kilponen

% change on previous year 2016f 2017f 2018f 2019f

GDP 1.1 1.3 1.2 1.2

Private consumption 1.9 1.4 1.0 0.9

Public consumption 0.3 0.3 0.3 -0.3

Private fixed investment 5.8 3.4 2.5 2.7

Public fixed investment 3.1 0.6 -0.2 –0.1

Exports 0.7 2.1 2.5 2.6

Imports 1.2 2.0 2.1 1.9



Recovery in investment raises

investment ratio

Juha Kilponen

0

5

10

15

20

25

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

%

Corporate fixed investment, % of GDP

Residential construction investment, % of GDP

Average 1990–2008

Source: Statistics Finland.

Dec 13 2016bofbulletin.fi33987@Kuvio1


Pace of export growth determined

primarily by euro area

Juha Kilponen

-3

-2

-1

0

1

2

3

4

5

6

7

2010 2012 2014 2016 2018

Exports to euro area Exports to outside euro area Exports

Annual change, %


13 Dec 2016bofbulletin.fi 34002@x ja m kontribuutio


Current account remains in deficit

Juha Kilponen

-4

-2

0

2

4

6

8

10

12

2000 2005 2010 2015

Primary income and current transfers from abroad

Services account

Balance of trade

Current account

% of GDP

Source: Statistics Finland. 13 Dec 2016bofbulletin.fi32344@E&T_3_2016_Vaihtotase (en)

Current account in deficit


Labour market strengthens

Juha Kilponen

Number of employed and

unemployment rate

Employment

rate, %

Unemployment

rate

%

2016f 68.6 8.8

2017f 69.1 8.5

2018f 69.7 8.3

2019f 70.2 8.26

7

8

9

10

11

2300

2350

2400

2450

2500

2550

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Number of employed, trendNumber of employed, Bank of Finland forecas, December 2016Unemployment rate, trendUnemployment rate, Bank of Finland forecast, December 2016

1,000 persons %


Trends for employment and the unemployment rate

13.12.2016eurojatalous.fi26516@Työlliset&työttöm.aste_trendi


Long-term unemployment has risen to

very high levels

Juha Kilponen

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015 2016

Proportion of the total number of unemployed people who are long-term unemployed

%

Source: Ministry of Economic Affairs and Employment.12-month moving average.32220@LTUosuus


Growth sustained by consumers

Juha Kilponen

-8

-6

-4

-2

0

2

4

6

8

2007 2012 2017

Savings inflation Nominal income Consumption


%

13 Dec 2016bofbulletin.fi32698@ET_3_2016_Kuvio1(e)


Wages and prices rising slowly

Juha Kilponen

1.0

Wages and prices, %

Wages HICPI

2016f 1.1 0.4

2017e -0,5 0.8

2018f 0.6 0.8

2019f 1.0

-3,00

-2,00

-1,00

0,00

1,00

2,00

3,00

4,00

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

HICP, productivity and unit labour costs

Productivity per employed person Unit labour costs, at market price HICP


Inflation slower than euro area

Juha Kilponen

HICP, %

FinlandEuro

area

2016f 0.4 0.2

2017f 0.8 1.3

2018f 0.8 1.5

2019f 1.0 1.7

0

4

8

12

16

20

24

–1

0

1

2

3

4

5

2004 2009 2014 2019

Price level in Finland relative to euro area

Finnish inflation

Euro area inflation

Inflation, % Difference in prices, %

Price index is based on household consumption expenditure.Sources: Eurostat and Bank of Finland.31705@hintataso&inflaatio


Weakening of general government

budget balance comes to a halt

Juha Kilponen

General government

net lending, %

EUR

bn

% of

GDP

2016f - 5.3 -2.5

2017f - 5.7 -2.7

2018f - 5.3 -2.1

2019f - 4.9 -1.7-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

2015 2016 2017 2018 2019 2016-19

Factors affecting the general government budget balance

Cyclical factors Interest expenditure

Taxes and social security contributions Primary expenditure, total

Other revenue Change in structural balance

% points

13.12.2016eurojatalous.fi34003@Kuvio1

Sources: Statistics Finland and calculations by the Bank of Finland.


General government debt ratio

will exceed 70%

Juha Kilponen

60,2

63,6

65,6

68,2

70,1

71,3

54

56

58

60

62

64

66

68

70

72

74

2014 2015 f2016 f2017 f2018 f2019

General government debt% of GDP

13 Dec 2016bofbulletin.fi34005@Chart4



Risks to the forecast on the downside

Uncertainty in the global economy has reached

exceptionally high levels

– Impacts of Brexit ?

– Future US economic policy ?

Sensitivity of the housing market to business cycle

and the impact of the competitiveness pact (+, -)

Alternative scenario assesses effects if global growth

declines by half– GDP would remain cumulatively 1.2% lower

– The need for fiscal consolidation would increase further

Juha Kilponen


Thank you!www.bof.fi

www.eurojatalous.fi

Juha Kilponen


Additional slides

Juha Kilponen


Growth supported particularly by

domestic demand

Juha Kilponen

-10

-5

0

5

2008 2010 2012 2014 2016 2018

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 demand component has been calculated on the basis of its volume growth and its value share in the previous year. The figures for 2016–2019 are forecasts.Sources: Statistics Finland and Bank of Finland.

Contribution of different demand components to GDP growth

13 Dec 2016bofbulletin.fi20756 @Kontribuutio

% points


Alternative scenario

Juha Kilponen

–1,0

–0,8

–0,6

–0,4

–0,2

0,0

0,2

2017 2018 2019

Weaker export demand Tighter fiscal policy

% points

Source: Bank of Finland calculations.13 Dec 2016bofbulletin.fi

32720@BKT_mw_fipo

Change in GDP relative to baseline scenario

–0,2

0,0

0,2

0,4

0,6

0,8

2017 2018 2019

Weaker export demand Tighter fiscal policy

Source: Bank of Finland calculations.13.12.2016eurojatalous.fi

32720@Velkasuhde_mw_fipo

% points

Change in debt ratio relative to baseline scenario

Economy & Finance

Juha Kilponen: Outlook for the Finnish economy 2016-2019