View from Finland’s OP-Pohjola is for weak growth, fragile recovery

Reijo Heiskanen, chief economist at Finland’s OP-Pohjola group, has forecast continued weak growth in both Finland and the broader eurozone into next year.

Finland’s position is slightly better, with GDP growth expected to hit 1.7% in 2014 as the economy recovers its export potential – supported by a slower rise in wages – and relatively stable unemployment at around 8.2%. However, consumer spending and capital expenditure will remain slow compared to previous years.

Inflation will remain low, forecast at 1.6% this year and 1.3% next year. Meanwhile, the country’s terms of trade will gradually improve off the back of export led growth. But, Heiskanen still sees the public debt/GDP ratio close to the 60% ceiling imposed by the EU – with both central government and municipalities running a combined deficit of some 4% of GDP.

“The surplus of the authorised pension providers in Finland will keep the public deficit within the limits of the Maastricht criteria but will not slow down growth in government debt because only a small proportion of pension assets have been invested in Finnish government bonds. If positive surprises do not come from the Finnish economy, additional spending cuts will be required in 2015 to meet the criteria set for the public debt/GDP ratio,” Heiskanen said.

Weak global growth

Looking outside Finland, Heiskanen said global growth remained weak and uneven. The projected growth rate next year will remain below the long term average.

That said, the economist expects growth to pick up in industrialised countries.

Growth in the eurozone is important because Finland is a member of the currency union. Growth across the area will average 1% next year, with the inflation rate below the ECB’s target.

“If the ECB wants to prevent a minor rise in Euribor rates during the next 18 months, it will have to cut its key interest rate or provide additional liquidity. We expect the ECB to keep its key rate unchanged and, if necessary, inject liquidity.”


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