The Finnish economy is expected to continue its solid growth in the near future.
The Ministry of Finance published its updated economic growth forecast for the next couple of years on Tuesday, raising its growth forecast for 2017 by 0.5 percentage points to 2.9 per cent and for 2018 by 0.5 percentage points to 2.1 per cent.
Its optimism stems from a number of signs detected during the course of this year indicating that the positive economic trend will continue, such as the up-tick in manufacturing orders, growth in the revenues of service providers and the sustained construction activity in population centres.
The growth, however, is expected to slow down to 2.1 per cent in 2018 as households are likely to think more carefully about their spending habits in the face of increased uncertainty about the growth of their purchasing power. The purchasing power of households is to be undermined by growing inflation but supported by the improved employment situation and lower income tax rates.
Investments, meanwhile, are expected to pick up in the form of equipment and machinery acquisitions, and construction projects.
The Ministry of Finance also expects exports to continue growing at a solid rate.
Although the long-anticipated return to the growth path will consolidate public finances by increasing tax revenues and reducing unemployment costs, the positive economic trend will not eradicate the structural factors undermining economic stability.
“Despite the economic recovery, general government expenditure clearly exceeds revenue,” tells the Ministry of Finance.
It also states that although the robust gross domestic product growth will help reverse the debt trajectory of Finland, the debt ratio will only improve moderately and remain close to 60 per cent in the early 2020s. The government is thereby unlikely to reach its objective of putting an end to living on debt in 2021.
The high debt ratio is a concern particularly in light of the cost pressures to be faced by the central administration in the years and decades to come due to population ageing, according to the Ministry of Finance.
“The favourable economic trend will not fix the subdued basic tone of the Finnish economy. Ageing will continue to choke the economy for a long time whatever the cyclical situation,” highlights Mikko Spolander, the director general of the economics department at the Ministry of Finance.
Aleksi Teivainen – HT
Photo: Martti Kainulainen – Lehtikuva