OREANDA-NEWS. The Finnish economy is still performing very modestly. The global economy has grown more slowly than expected, trade with Russia has contracted and productivity development remains weak. Finnish exports have stalled and are lagging behind the pace of growth in the export markets.

The outlook for the Finnish economy over the next few years has also continued to deteriorate. According to the Bank of Finland’s new forecast, Finnish GDP is expected to contract 0.2% in 2014 and 0.1% in 2015. After four years of unbroken contraction, the economy will grow at a sluggish 1% in 2016. Such a prolonged period of contraction followed by slow growth are exceptional both historically and internationally. Furthermore, current geopolitical tensions increase the downside risks to the forecast. On the other hand, euro depreciation and the fall in the price of oil could lead to faster-than-forecast growth.

Relative to previous economic downturns, the weak pace of economic growth is still only reflected to a limited degree on the labour market. The number of people employed will continue to decline slowly in 2014 and 2015, and the unemployment rate will remain at around 8.5%. Household purchasing power will not be enhanced in the forecast period and private consumption will not grow until 2016.

There will be a cautious recovery in capital investment in the forecast period. Demand is weak, growth expectations are sluggish and there is still unutilised production capacity in many sectors of the economy. Construction activity is being sustained by renovations and construction of rental housing.

Finnish inflation will slow further in 2015, to 1 %, due to declining commodity prices. Slow growth in labour costs and weak private consumption will also lower inflationary pressures. Inflation will accelerate to 1.4% in 2016 as economic growth gathers pace.

The weak developments in the economy will mean a continued substantial deficit in the public finances and growing indebtedness. Public debt will already exceed 63% of GDP in 2016. The general government structural deficit is moving away from the medium-term objective. The current account will continue to be in deficit.