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Bank of Finland upgrades growth forecast to 2.9% for 2018, 2.2% for 2019

Bank of Finland upgrades growth forecast to 2.9% for 2018, 2.2% for 2019

The Finnish economy is poised to continue its robust growth in the years to come, forecasts the Bank of Finland.

The Bank of Finland on Tuesday revealed it has revised up its growth forecast for 2018 to 2.9 per cent, for 2019 to 2.2 per cent and for 2020 to 1.7 per cent as a consequence of favourable productivity developments, financing conditions and strong demand for exports.

The figures represent an improvement of 0.3–0.6 percentage points from the previous forecast.

“Total factor productivity, in particular, has developed favourably,” Juha Kilponen, the head of forecasting at the Bank of Finland, highlights in a press release. “Higher business investment will also help to lay a stronger foundation for growth in the immediate years ahead.”

The Bank of Finland is considerably more optimistic about next year than the Ministry of Finance, which announced earlier this week it has downgraded its growth forecast for 2019 from 2.2 to 1.8 per cent.

Finnish exports are expected to continue their solid performance supported by the sustained, strong cyclical trend of the global economy and improved export competitiveness arising from the recent moderate wage increases in Finland, according to the Bank of Finland.

High levels of household consumption and corporate investment, meanwhile, are expected to support the robust growth of domestic demand in 2018–2020, whereas higher employment, rising earnings and low inflation are to support the purchasing power of consumers. Private consumption is expected to exceed disposable household income, forcing households to continue running up debt.

“Enhanced corporate profitability and attractive funding costs will stimulate investment, although investment growth will slow during the forecast period,” the press release reads.

The Bank of Finland forecasts that the national employment rate will continue to improve in 2018. In 2019–2020, however, the improvements will be constrained by the shrinking of the working-age population, labour market mismatch problems and high structural unemployment.

The favourable cyclical conditions should also allow the country to bring down its debt ratio below the 60 per cent mark in 2019, the forecast shows.

The Bank of Finland also calls attention to a number of factors that could yet undermine economic development in Finland in 2018–2020.

“Finnish economic developments in the immediate years ahead may remain weaker than forecast, if growth in foreign demand decelerates,” it says. “Some euro area countries witnessed signs of a moderation in economic growth in the spring, and heightened protectionism is reining in global trade growth.”

The economic growth can also exceed expectations if investments grow faster than forecast as a result of a strong outlook for exports and favourable financing conditions.