8 COUNTRY FACTS Economic Outlook 2013/2014 The Ministry of Finance’s forecast for 2013 and 2014 assumes that the world trade growth is set to remain well below the long-term average and the Finnish economy will gain no significant traction from the external environment. The forecast for 2013 projects a decrease of 0.5% in euro area economic activity, and even in 2014 growth will climb just over half a per cent. In 2013, Finland’s real GDP is projected to contract by 0.4%. Industrial manufacturing will decline sharply due to both cyclical and structural reasons. Industrial output will be down by 4.5% from last year, and growth in service output will reach no more than 0.3. The outlook for private consumption has also deteriorated. Consumer uncertainty has increased, and this is reflected most notably in purchases of durables. Incomes and consumption are also affected by the deteriorating employment situation and steps taken to increase taxes. In 2013 the volume of Finnish exports will remain at around the same level as in 2012. Coupled with sluggish domestic demand, slow exports will drag imports into a slight decline in 2013. The current account will continue to remain in deficit. The investment outlook is weak, as well. Private investment will fall by 4.5% in 2013, primarily as a result of declining investment in building construction. Investment in machinery and equipment will also be down from 2012. The employment situation has continued to deteriorate. In 2013 the unemployment rate will edge up to 8.3%. With the easing of international price pressures and the continued sluggishness at home, consumer prices have risen more moderately than before, by 1.7% from the previous year. The index of wage and salary earnings is expected to rise by 2.1% in 2013, and therefore real consumer earnings will develop quite moderately. The forecast assumes that economic growth will resume by the end of 2013. The growth projection for 2014 is 1.2%. Private consumption show moderate growth at 0.8%, primarily because of weak real earnings growth. Exports will increase by 3.7% in the wake of growing international demand. Increasingly, the growth of exports will be driven by services related to investment projects. The current account deficit is expected to contract in 2014 because the balance of services and net capital payments will improve with accelerating world trade. The prospects for employment growth will remain bleak, mainly due to sluggish demand and labour market mismatch problems. It is also likely that businesses will pursue growth by seeking to improve productivity. The unemployment rate forecast for 2014 is 8.1%. In 2015, GDP growth will come in at 1.9%. The cumulative growth rate for 2013–2015 will reach 2.7%. Public finances will remain in deficit for the next few years, with negative GDP growth expectations. Public expenditure to GDP will reach its highest level in more than 15 years. The expenditure rate will be driven by spending associated with unemployment and population ageing. Public debt will continue to rise and central government finances will remain in deficit despite adjustment efforts. It is projected that in 2014 central government will show a national accounts deficit of EUR 6bn, or 3 % of GDP. Inflation expectations are moderate at well below 2%, allowing central banks to persist with an unusual monetary policy stance. Both short and long-term interest rates will remain exceptionally low in the euro area, except for the crisis countries. The growth scenario for the next couple of years means that the economy will face significant challenges in the next few years. First of all, Finnish exports have shown very poor performance both during and immediately after the financial crisis. Finnish exports growth will remain slower than world trade growth in the close future. The problem lies not just in the slowdown in demand caused by the euro crisis, but also in Finland’s competitiveness and the structure of the Finnish exports. Secondly, low growth will lead to a deterioration of public finances. It is essential that the steps taken to strengthen the general government budgetary position do not in any way hamper the growth potential of the private sector. Sustainable growth can only be achieved on the back of a robust private sector. Thirdly, a lot of skilled labour is moving out of the labour market as a result of population ageing. From an economic growth point of view it is important that the labour market structures do not hamper the effective use of existing resources. Source: Ministry of Finance, Economic Bulletin 1/2013, 19 June 2013
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