OREANDA-NEWS. The Finnish economy is returning to growth, in the wake of the other euro area countries. The Finnish economy is still lagging behind activity in the rest of the euro area, as population ageing and the lack of diversity in the production structure of the economy dampen the prospects for growth. Continued debt accumulation and the sluggishness of industrial activity give cause for concern in terms of the sustainability of growth.

According to the Bank of Finland forecast, GDP will grow by 1.1% in 2016. Economic growth will be bolstered by domestic demand as exports remain sluggish. GDP will continue to grow by 1.1% in 2017 and by 1.0% in 2018. Investment will pick up, particularly in construction, but also in other sectors of output. In contrast, inflation will remain slow in Finland for an extended period of time.

Growth in Finland’s export markets in 2016–2018 will be slower than foreseen earlier and exports will improve only moderately. In recent years, exports to Russia, in particular, have contracted strongly.

Finnish export prices in the immediate years ahead are envisaged to rise more slowly than those of competitor countries, and growth in unit labour costs will also remain slightly slower than in other euro area countries. However, marginal improvements in competitiveness will not suffice to pull the market shares of Finnish foreign trade onto a growth path. If the competitiveness accord is concluded, this will facilitate the closing of the competitiveness gap relative to Finland’s trading partners. Growth in nominal earnings will be subdued, around 1% annually during the forecast period.

The labour market has already witnessed a turn for the better. Contrary to earlier cyclical turning points, growth will be supported by labour-intensive service sectors and construction rather than exports and industry. As in other euro area countries, employment developments in Finland can be expected to be slightly better relative to the growth rate of the economy than we have been used to seeing in the past.