Business cycle | The Bank of Finland predicts weaker economic growth

Economic will grow more slowly than expected next year, estimates the Bank of Finland in its business cycle forecast published on Tuesday.

According to the new forecast, the economy will grow by 1.2 percent next year, which is 0.5 percentage points less than in the March forecast. According to the Bank of Finland, the economy will grow by 1.7 percent in 2026.

“The slowdown in world trade growth and the government’s tax cuts and benefit cuts are the main reasons why next year’s economic growth will be weaker than previously predicted,” says the Acting Governor of the Bank of Finland. Forecasting Manager Juuso Vanhala.

Today According to the Bank of Finland, the economy will shrink by 0.5 percent in 2018, but the recovery will probably start in the fall. The recovery is hastened by slow inflation, which strengthens the purchasing power of households and supports private consumption.

The recovery is also hastened by brighter economic prospects and the gradual dispersal of economic uncertainty. At the same time, financial markets expect interest rates to fall, which is likely to increase private consumption.

All in all, however, the Bank of Finland is concerned that, despite the recovery, economic growth will be slow in the next few years.

Private the Bank of Finland predicts that investments will shrink significantly this year. Residential construction continues to decline sharply, and the tight monetary policy of the European Central Bank and the uncertain economic outlook are also reducing productive investments.

In the coming years, the conditions for investment growth will improve, as demand will increase, inflation will be slow and financing conditions are expected to ease.

The outlook for the export industry is overshadowed by the modest economic growth of the euro area in particular. The European Central Bank (ECB) predicts that the euro area economy will grow by 0.9 percent this year, 1.4 percent next year and 1.6 percent in 2026.

Recession is inevitably also reflected in the labor market. Employment weakens and unemployment temporarily increases.

The Bank of Finland predicts that the unemployment rate will rise to 8.1 percent this year and the employment rate will shrink to 77 percent. Based on the forecast, the unemployment rate next year will be 7.8 percent.

Despite the government’s extensive balancing of public finance revenues and expenditures, indebtedness continues to grow. According to the Bank of Finland, the recession and ever-increasing government debt interest costs make it difficult to balance the public finances.

According to the new forecast, the debt of the public finances will increase to 83.5 percent in relation to the gross domestic product in 2026.

“It is important to continue balancing the public finances, and it would be significantly more difficult if the government had not already taken action,” says Vanhala.

Bank of Finland director general Olli Rehn stressed at the press conference that the ECB’s decision to lower key interest rates last week will speed up the economic recovery. However, over a long period of time, the key question is how Finnish companies succeed in international competition.

“Most of the innovations used in Finland have been produced elsewhere. By investing in basic research and the education based on it, we strengthen our ability to utilize innovations made elsewhere. Innovation potential is also increased by work-based immigration of those with higher education and the internationalization of companies.”

According to him, in addition to research and development funding, Finland needs an efficient tax system and regulation that promotes the introduction of innovations.