Economic Survey, Economic outlook and fiscal policy for 2010-2014, Spring 2010

Economic Survey Spring 2010
30.03.2010 | pdf, 1,9 Mt

Summary

In the medium term it is expected that the Finnish economy will recover from the deep economic crisis along with the rest of Europe. As recovery gathers momentum, economic growth will accelerate to over 3% in 2012. It is projected that exports will again begin to grow rapidly with the revival of world trade and the export markets. Domestic demand growth will also accelerate with the improving labour market situation and the unleashing of pent-up investment needs.

As we approach the middle of the decade, however, economic growth will begin to slow as a result of structural changes in the economy, population ageing and the relocation of production to cheaper labour economies.

The labour market situation also looks set to improve over the medium term, and it is expected that the number of job vacancies will begin to rise sharply. At the same time the mismatch between labour supply and labour demand will get worse. The new jobs that are being created after the recession are not located in the same places and in the same branches where jobs were lost during the recession. This is slowing the growth of employment. Population ageing will also begin to constrain the labour market during the present decade. The unemployment rate is expected to fall from its 2010 peak to just over 7% by 2014. The employment rate in 2014 is projected to stand at close to 70%.

The legacy of the recession will continue to impact public finances for years to come. In 2010 it is forecast that the deficit will deepen further to about 4% of GDP and therefore clearly exceed the 3% deficit threshold of the Stability and Growth Pact. However this will only be a temporary breach because in 2011 the deficit will narrow to close to 2% of GDP. Although general government finances will continue to improve over the years ahead on the back of economic recovery, it is expected that without new measures to stimulate growth and consolidate public finances, they will remain firmly in deficit in 2014. Only social security funds will retain a surplus. The general government debt ratio began to rise last year, and by 2014 it is projected to climb to 56.5%.