Finland Lifts Growth Estimate to 1% in 2012 on Domestic Demand

Finland raised its forecast for economic growth as private consumption is expected to offset slowing exports.

Gross domestic product will expand 1 percent this year, 1.2 percent in 2013, and 2.1 percent in 2014, the Helsinki-based Finance Ministry said today in a report. It had in April predicted growth of 0.8 percent for this year. The Bank of Finland, the country’s central bank, last week forecast that the economy will grow 1.5 percent this year.

“Exports growth will remain subdued,” the ministry said. “Growth will come almost entirely from private consumption.”

Finland is one of the four euro countries that still retain AAA ratings at Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. Finland generates 40 percent of its output from sales abroad and has been hampered by the debt crisis sweeping through parts of the euro area.

Government debt will grow to 51.9 percent of GDP this year and reach 53.7 percent by the end of 2014, the ministry said, compared with the European Commission’s forecast of a euro-area average of 92.6 percent next year. The general government will have a deficit of 1.6 percent this year and 1 percent next year, the ministry said.

Finland’s 1.4 billion-euro contribution to the European Stability Mechanism will increase public debt by 0.7 percentage point, the ministry said. The parliament is due to vote on the payment and the rescue fund establishing treaty on June 21.

The government led by Prime Minister Jyrki Katainen plans 2.7 billion euros in spending cuts and tax increases to reduce debt as a percentage of GDP by the end of its term in 2015. The budget will be “close to balance” by 2014, the ministry said.

Finland’s 10-year benchmark bond yielded 1.84 percent today as 11:18 a.m., compared with a record low of 1.442 percent on June 1. The difference with a similar-maturity German bond was little changed at 38 basis points. A basis point is 0.01 percentage point.

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net

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