Private consumption in Finland likely to slowdown in 2017, inflation to accelerate above 1 pct

In 2016, the Finnish economy has surprised on the upside. According to a Danske Bank research report, the economy is expected to grow around 1.3 percent annually in 2017-2018. Statistics Finland upwardly revised the first half of 2016 growth, while expansion has continued in the second half. Consumption and construction has mainly driven the economic growth this year, whereas exports and corporate investment are expected to take bigger roles next year.

While economic growth has reached a speed that might be characterized as a new normal, Finnish GDP is quite below the previous peak. Private consumption is expected to decelerate next year. Meanwhile, inflation is likely to accelerate above 1 percent and low wage and pension growth are expected to challenge purchasing power. Income tax cuts and better employment are likely to keep consumption on a modest growth track.

Migration to growth centres has resulted in additional demand for housing, which is underpinned by low rates and high consumer confidence. Housing demand growth has increased prices and led to a boom in construction in Helsinki and other towns, while the real estate market in the remainder of the nation is more or less flat.

In recent years, exports have performed badly. The 2017 outlook appears promising, thanks to growth in export markets and the competitiveness pack producing an internal devaluation. Russia is likely to resume growth and raise demand for Finland’s exports. Tourism from Russia has begun rebounding already.

“We have broadly kept our government debt forecast unchanged. All major credit rating agencies have downgraded Finland to the AA+/Aa1 category. We do not expect any rating revisions in the near future”, added Danske Bank.