According to the latest information, the Finnish economy achieved moderate GDP growth in 2016. Consumer and business surveys have improved and point to healthy growth ahead. OP’s economists expect Finnish GDP to rise 1.8% this year and 2.0% next year. This is the first time the 2018 growth forecast is issued. The 2017 growth forecast is 0.4 percentage points higher than in the adjusted prediction issued in November 2016. Economic growth in 2016 relied on consumer spending and construction. This year GDP growth will rest on a broader foundation. Exports and corporate investments will also recover. Prerequisites for stronger export growth in 2018 are in place. Construction growth, on the other hand, will slow down from the recent high level.

1. Economic outlook for Finland
Reijo Heiskanen
OP Financial Group
February 2017

2. Economic growth has picked up and it is set
to continue at reasonable pace

3. Consumer confidence pointing to healthy
consumption growth

4. Industrial cycle is gaining strength

5. Diversified goods exports structure by country
5
Finnish economy
Finland’s largest goods exports countries Goods exports by
country*
2000-15 January–October 2016
Goods
exports to EU
member
countries’
59.8% and to
Euro Area
38.2%
in January-
July 2016
* Other countries: Norway (3,0%), Poland (2,8%), Italy (2,5%), Spain (1,9%), Japan (1,9%), Denmark (1,7%), Turkey (1,5%),
Switzerland (1,6%), South Korea (1,3%), Latvia (1,0%), India (1,0%) and diversified other countries with a share of less than 1,0%.

6. Fall in value of exported goods seems to be
bottomoning out

7. • The competitiveness pact will improve
competitiveness by reducing private sector’s unit
labour costs by 3.7%. In addition, wage freeze in
2017 will improve competitiveness by 0.5%. In total
4.2%.
• Measures will be phased in, therefore ULC will
reduce by 3.3% and 3.8% in 2017-2018,
respectively. From 2019 onwards, the impact of the
measures will be 4.2%.
• According to Ministry of Finance’s calculations,
decline in the ULC would boost GDP by 1.4% in the
medium term and strengthen employment by 35
000.
• Eventually, the pact’s coverage reached over 90%,
which means that the government will reduce
taxation of wage-earners by 0,515 bn. euros in
2017. The tax cuts will outweigh the gradual
increase in employees’ social security contributions
in 2017.
• According to the OP’s economists the pact will start
to impact exports positively late 2017, while the
main effect will be seen in 2018-19.
How measures improving cost-competitiveness
will impact economic growth?
Measures Impact on reducing unit
labour costs, % (year
2021)
Increasing hours worked per year
by 24 hours
1.5
Reduction in employer’s social
security contribution
0.5
Transfer of the unemployment
insurance contribution by 0.85 p.p.
from employers to employees
0.7
Transfer of the earnings–related
pension contribution by 1.2 p.p.
from employers to employees
1.0
Wage freeze in 2017 0.5
Total 4.2%

8. Labour market picture is improving

9. Inflation – moderate pick-up in 2017

10. Deficit diminishing, increase in debt slowing

11. Broad based growth ahead
Forecasts for the Finnish economy
Published on 24 January, 2017
Volume, % change on previous year 2015 2015 2016f 2017f 2018f
EUR bn
GDP 209,1 0,2 1,7 1,8 2,0
Imports 77,5 1,9 2,2 3,0 3,5
Exports 76,6 -0,2 1,1 3,5 5,0
Consumption 166,7 1,1 1,5 0,9 1,1
Private consumption 115,7 1,5 2,1 1,5 1,5
Public consumption 51,0 0,4 0,2 -0,5 0,2
Fixed investment 42,7 0,7 3,0 4,1 3,0
Other key indicators 2015 2016 2017f 2018f
Consumer price index, % change y/y -0,2 0,4 1,4 1,6
Unemployment rate, % 0,4 8,9 8,3 7,8
Current account balance, % of GDP -0,4 -0,6 -0,6 -0,4
General government debt, % of GDP -2,6 -2,3 -2,3 -1,8
General government net lending, % of GDP 63,6 63,5 64,6 65,1
Sources: Statistics Finland and OP Financial Group

12. Stable growth in household loans

13. Moderate development in house prices

14. Average house prices and households’ debt
14
Latest values: Q3/2016 Latest values: 2015
Finnish economy

15. Balanced goods exports structure by commodity group
15
Finnish economy
Goods
exports 70%
of total
exports and
share of
service
exports
gradually
increasing
Goods exports by commodity group Goods exports by commodity
group
2000-15 January–October 2016

16. Finally upswing ahead
• According to the latest information, the Finnish economy achieved moderate GDP growth in 2016. Consumer and business
surveys have improved and point to healthy growth ahead.
• OP’s economists expect Finnish GDP to rise 1.8% this year and 2.0% next year. This is the first time the 2018 growth
forecast is issued. The 2017 growth forecast is 0.4 percentage points higher than in the adjusted prediction issued in
November 2016.
• Economic growth in 2016 relied on consumer spending and construction. This year GDP growth will rest on a broader
foundation. Exports and corporate investments will also recover. Prerequisites for stronger export growth in 2018 are in
place. Construction growth, on the other hand, will slow down from the recent high level.
• Inflation should shift from the zero per cent level as the consumer price index rise will no longer be halted by oil price
decreases. Pressure on costs is, however, only moderate and inflation is predicted to hover around 1.5%.
• Employment should increase relatively strongly both this and next year. The 2018 employment rate is expected to near the
70.3% level achieved in 2008 at the peak of the economic cycle. Labour supply is anticipated to start rising as job
opportunities increase. The unemployment rate is expected fall roughly at the same pace as last year. It is forecast to
decrease to 8.3 per cent this year and 7.8 per cent next year.
• The public deficit should continue decreasing again in 2018 after an intermission period, but the debt-to -GDP ratio will
continue rising both in 2017 and 2018.

17. Thank you!
Macroeconomy