Construction, consumption likely to drive Finnish economy in 2016

Construction and consumption are expected to mainly drive the Finnish economy in 2016. The economy is likely to grow 1.2 percent in this year. Domestic demand has been more robust that projected; however, consumption is likely to be dampened by strict fiscal policy and a sluggish rebound in purchasing power next year.

Housing construction is also growing considerably. Exports and manufacturing CAPEX is likely to gain momentum next year, given the new competitiveness pact and presuming decent global economic growth, noted Danske Bank in a research report.

Last year, Finland’s economy grew 0.7 percent and accelerated to 1.6 percent y/y in the first quarter of 2016. This was mainly due to construction and consumption. Goods exports dropped 3 percent, whereas net exports were a drag on the growth. In Q1, manufacturing investment dropped.  Meanwhile, employment in private sector has already begun rising; however, public sector continues to lay off staff.

The new competitiveness pact is likely to reduce unit labor costs by 3.7 percent, which along with higher wage, rises in other nations such as Germany should stimulate price competitiveness by late 2017, according to Danske Bank. Meanwhile, the adverse effect of Russia on exports diminishes in 2016 and exports to the western markets are likely to grow modestly. Therefore, exports and CAPEX are likely to have a positive impact, but “less buoyant consumption in 2017,” added Danske Bank.

Meanwhile, the government debt remains below three percent per GDP, whereas the debt-to-GDP ratio is likely to reach 67.2 percent by late 2017.