Pohjola Pankki Oyj : OP-Pohjola's economists: Minor growth and fragile recovery

    Pohjola Pankki Oyj : OP-Pohjola's economists: Minor growth and fragile

The first half saw a slight recovery in the world economy although the growth
remained weak and uneven. According to economic surveys, the world economy is
gradually picking up speed. OP-Pohjola's economists predict that the global
economy will see sluggish growth and the growth rate will remain below the
long-term average next year too.

- However, the global economic landscape will look slightly different.
Economic growth will pick up, driven mainly by industrialised countries.
Emerging economies will continue to grow at somewhat their current pace, says
Reijo Heiskanen, Chief Economist.

The euro-area economy showed a slight recovery in the spring and, according to
OP-Pohjola's economists, should grow at a rate of one per cent next year. This
projection has not changed from the year start. German is forecast to remain
the euro zone's growth engine but the problem countries should also begin
their slow recovery. The inflation rate will remain below the ECB's target.

The ECB has announced that it will keep its key rates low in the euro area for
an extended period. LTRO repayments will gradually drain liquidity, which
tends to raise Euribor rates.

- 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, says Heiskanen.

Economists expect that economic risks will continue to remain much higher than
usual but the risk outlook has gradually changed. The risk of panic driven by
market disruptions in the euro area has decreased substantially but the worst
of the debt crisis is anything but over. Uncertainty may rear its ugly head
again for several reasons. Next year, the US monetary policy will remain a
major concern. An economic slowdown has begun to reveal the vulnerability of a
number of emerging economies. Moreover, the situation in the Middle East will
remain worrisome.

Finland has potential for a well-balanced recovery

The Finnish economy returned to a slow-growth path during the first half.

- We expect that the growth will remain slow towards the end of 2013 and in
2014. Because of the negative carry-over effect, GDP will not increase on
average this year but is anticipated to grow at a rate of 1.7% next year. Our
economic growth forecast for 2014 is the same as in early 2013, says

According to Heiskanen, the forecast is based on highly moderate pay
settlements that will support Finland's export recovery. A slower rise in
wages will also reduce inflationary pressures and consumer prices are expected
to increase by 1.3% next year and by 1.6% during the current year. Due to low
inflation, real wages will not virtually decrease next year.

The gradual recovery of the Finnish economy will come from exports. Consumer
spending and capital expenditure will show sluggish growth compared with prior
years. The growth will also increasingly be based on higher productivity and
employment. The unemployment rate is expected to remain on average at this
year's level, 8.2%.

The Finnish current account has improved rapidly during the current year, as a
result of a reduction in imports and an improvement in terms of trade. The
current account is anticipated to improve further in the wake of a gradual
recovery in export markets. Moreover, a corporate tax reform will contribute
favourably to the current account. Finland's current account is actually
expected to show a slight surplus next year.

The Finnish fiscal deficit should improve slightly next year but the public
debt/GDP ratio is expected to rise close to the ceiling of 60% imposed by the
EU. The debt is projected to grow relatively fast because the combined deficit
run by the government and municipalities will remain almost 4% relative to

- 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,
points out Heiskanen.

For more information, please contact:
Reijo Heiskanen, Chief Economist, tel. +358 10252 8354

Reijo Heiskanen, Chief Economist, and Maarit Lindström, Vice President and
Economist, will discuss economic prospects in OP-Pohjola Nyt (OP-Pohjola Now)
broadcast on 26 August 2013, starting at approximately 2 pm at op.fi >
OP-Pohjola-ryhmä > Uutishuone

OP-Pohjola Group

OP-Pohjola Group is Finland's leading financial services group providing a
unique range of banking, investment and insurance services.The Group's mission
is to promote the sustainable prosperity, well-being and security of its
owner-members, customers and operating regions through its local presence.Its
objective is to offer the best and most versatile package of loyal customer
benefits on the market.OP-Pohjola Group consists of some 200 member
cooperative banks and the Group's central institution, OP-Pohjola Group
Central Cooperative, with its subsidiaries and closely-related companies, the
largest of which is the listed company Pohjola Bank plc.


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Source: Pohjola Pankki Oyj via Thomson Reuters ONE
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