OP economists' economic forecast

Economy in a tight spot

In their new economic forecast, OP Financial Group's economists estimate that the economic outlook has deteriorated. Global economic expansion continues at a measured pace and no essential recovery is in sight for the world economy.  

The world economy will expand at a slightly slower pace this year than in 2014. In 2016, OP economists estimate that global economic expansion will not gain much momentum from the pace in earlier years.

- What is especially problematic for Finland's growth, in addition to Russia's recession, is the weak growth in world trade relative to GDP growth. This reflects muted investment demand, which is destructive for Finland's exports, notes Reijo Heiskanen, OP Financial Group's Chief Economist.

Finland's exports to the euro zone have been robust this year. The euro zone's economic growth will slightly miss the spring expectations this year and is not likely to show much improvement in the next.

Global inflationary pressures are mild and euro zone inflation will be slower than central bank forecasts. The ECB will continue its bond repurchase programme and may have to consider additional measures. The reference rate will stay at the present level in the coming year as well. The biggest risks associated with the global economy relate to the growth outlook for emerging markets, which may deteriorate further as a result of the US monetary policy tightening.

Finland's recovery rests on investments

Finland's economic development was weak during the early part of this year. Exports did not recover due to the contraction Russian exports, for instance. Positively, consumption showed some growth. OP economists expect Finland's GDP to contract this year by 0.3% and to rebound by 0.8% in 2016, driven by a pick-up in investments, continued small growth in consumption and dissipation of the biggest headwinds relating to Russian exports.

- The export-driven recovery that was expected for many years never materialised. Next year, the biggest boost to the economy will come from investment growth. Later on, this will augment export potential as well, estimates Chief Economist Heiskanen.

Inflation will remain very low through next year. Both global cost pressures and domestic wage pressures will be minor. OP economists expect consumer prices to decrease by 0.2% this year and to rise by 0.6% in the next. Unemployment rose surprisingly sharply early this year and OP economists estimate that it will remain at 9.4% in the coming year. Employment will decrease further this year and will not show any growth on average in 2016 either.