Finnish economy likely to grow 2.8 pct in 2017, 1.8 pct in 2018: Danske Bank

The Finland economy is expected to have grown 2.8 percent in 2017 and 1.8 percent in 2018. Finnish GDP is still below the previous peak and the economy is cruising towards potential output, which it may reach soon. Future growth depends on structural reforms and labor participation, which is well below other Nordic countries.

The Finnish economy steamed ahead in Q2 2017 as well. GDP rose 3 percent y/y in H1 and FY 2016 has been revised up to 1.9 percent. Private consumption continues to grow 2 percent in 2017. Rising inflation and low wage growth challenge purchasing power, but better employment, high confidence, an income tax cut and cheap debt have kept consumption on a growth track. Industrial wage negotiations later this year are likely to lead to modest wage rises, Danske Bank reported.

Exports of goods and services rose 7.9 percent in Q2 and business surveys imply growing order books. The outlook is better thanks to growth in export markets, especially Russia, improving price competitiveness, several large ship orders and new production facilities in the forest and automotive industries. Growing demand, higher confidence, and low-interest rates have boosted manufacturing investment too.

Meanwhile, structural reforms are still needed to manage the needs of an ageing population and to boost potential growth, however, otherwise debt ratio could resume its rising trend in the medium run. The rating outlook is getting brighter, but rating agencies are likely to need further evidence of sustained improvement, before raising ‘AA+/Aa1’ sovereign credit ratings.

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