Pohjola Pankki Oyj: The Ukraine crisis will slow economic growth in Finland -
decisions made in the framework budget debate will have a smaller effect on
OP-Pohjola Group's economists expect the Finnish economy to recover and to
outperform the euro area during the current year.However, the economy will
recover more slowly than previously predicted because of the
weaker-than-expected economic growth in Russia and its repercussions.Decisions
based on the framework budget debate will slow growth slightly next year but
an increase in fixed investments should cushion the effects of spending cuts
and tax hikes.
Finnish GDP is expected to grow by 1.0% in 2014 (January 2014 forecast: 1.7%)
and by 2.0% next year as against the previous forecast of 2.5%.
- Economic outlook in Russia already was weak before the Ukraine crisis but
the crisis is expected to slow Russia's economic growth further. The growth
rate should remain one per cent this year and two per cent in 2015. In
addition, the rouble is expected to remain markedly weaker, says Reijo
Heiskanen, Chief Economist, OP-Pohjola.
Economic slowdown in our Eastern neighbour will be reflected in the Finnish
economy through exports and also partly through a decrease in the number of
tourists from Russia.
Slower export growth will also be felt in domestic demand. Consumer spending
and capital spending are expected to show weaker growth. Unemployment is
expected to increase slightly.
- Economic slowdown in Russia and its repercussions are anticipated to slow
Finnish GDP growth by 0.7 percentage points this year. However, the negative
effect should next year be only a tenth of a few percentage points, points out
Fiscal position to improve
Decisions based on the framework budget debate of the Katainen administration
are expected to decrease Finnish economy by 0.2-0.3 percentage points next
year. Increases in indirect taxes and administrative charges are anticipated
to accelerate the inflation rate slightly in 2015 by 0.1-0.2 percentage
- Decisions based on the framework budget debate will slow down growth. Tax
hikes and benefit cuts will cut purchasing power and consumer spending. In
addition, government spending cuts will slightly retard economic growth.
However, an increase in fixed investments by selling government holdings
should dampen the effect of spending cuts and tax hikes, explains Heiskanen.
Fiscal adjustments and the sale of government holdings will reduce the
government and fiscal deficits in 2015. The government debt-to-GDP ratio is
expected to remain below the critical level of 60% but the ratio will not,
however, stop rising until 2016.
For more information, please contact:
Reijo Heiskanen, Chief Economist, tel. +358 (0)10252 8354
Timo Hirvonen, Economist, tel. +358 (0)10 252 8515
Maarit Lindström, Vice President, tel. +358 (0)10 252 1695
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Source: Pohjola Pankki Oyj via Globenewswire
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