Transcript Economic outlook for 2012–2014

Economic outlook for 2012–2014
Euro & talous (Bank of Finland Bulletin) 5/2012
Governor
Erkki Liikanen
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
1
Signals from international economy point in
two directions
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2
Financial market situation improved since the
summer...
Stock prices
USA (S&P500)
140
Germany
Spain
Italy
4 Jan 2010 = 100
130
120
110
100
90
80
70
60
50
40
2010
2011
2012
Source: Bloomberg.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
3
…but growth forecasts revised downwards
during the course of the year
GDP forecasts for 2013
World
3.5
USA
Inflation forecasts for 2013
Euro area
%
World
3.5
3
3
2.5
2.5
2
2
1.5
1.5
1
1
0.5
0.5
0
0
2012
Euro area
%
2012
Source: Consensus Economics.
13.12.2012
USA
Erkki Liikanen
Source: Consensus Economics.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
4
Growth outlook for Finland also weakened
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
5
Finland’s economic growth very weak
GDP: % change on previous year (right-hand scale)
GDP at reference year (2000) prices (left-hand scale)
180
%
EUR billion
10
160
5
140
0
120
-5
100
-10
2000
2002
2004
2006
2008
2010
2012
2014
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
6
Supply and demand
2011*
2010
2011
2012e
2013e
2014e
EUR billion Volume, % change on previous year
GDP
189,4
3,3
June forecast
Change
2,7
0,3
0,4
1,5
2,9
1,5
1,2
1,6
-0,2
-1,2
-0,8
-0,1
Imports
78,3
6,9
5,7
-1,2
1,0
4,2
Exports
77,1
7,5
2,6
-1,9
1,3
4,3
Private consumption
105,2
3,3
2,5
0,7
-0,1
1,2
Public consumption
46,0
-0,3
0,4
-0,3
1,0
0,6
Private investment
32,4
3,5
7,7
-0,9
0,4
3,5
Public investment
4,6
-7,7
0,6
0,4
0,5
1,3
* At current prices, EUR billion.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
7
Labour markets deteriorating
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
8
Slow growth will push up unemployment
Employed (left-hand scale)
Unemployment rate (right-hand scale)
2,600
1,000 persons
%
12
2,500
10
2,400
8
2,300
6
2,200
4
2004
2006
2008
2010
2012
2014
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
9
Labour costs have risen
Compensation per employee
Unit labour costs
Productivity per person employed
10
% change on previous year
8
6
4
2
0
-2
-4
-6
2004
2006
2008
2010
2012
2014
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
10
Competitiveness weaker than manufacturing
unit labour costs suggest
Manufacturing
Change 1999Q1-2012Q2, %
Volume of production
Value of production
Finland
Euro area
Unit labor costs
Labor costs per value of production
-10
0
10
20
30
40
26313
Source: Eurostat. Production is gross value added.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
11
Domestic demand fading, export outlook weak
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
12
Household consumption fading
Savings ratio
Real disposable household income*
Private consumption*
6
%
4
2
0
-2
-4
2004
2006
2008
2010
2012
2014
Households = households and non-profit institutions serving households
* % change on previous year
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
13
Export growth weak
Exports of goods and services
140
Finland's export markets
Index, 2007Q1 = 100
130
120
110
100
90
80
70
2007
2008
2009
2010
2011
2012
2013
2014
Sources: Statistics Finland, Eurosystem and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
14
Current account remains in deficit
Current account
12
Goods and services account*
% of GDP
8
4
0
-4
-8
1980
1985
1990
1995
2000
2005
2010
* National Accounts
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
15
Situation of the open sector must be taken into
account in pay agreements
 Exports developed weakly, outlook still weak.
 Background:
– Sluggish international growth
– Special problems of electronics and paper industries
– Growth in labour costs
 Export success, open sector employment and the
foreign trade balance all require that the
competitiveness of the open sector is strengthened.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
16
Inflation will gradually slow
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
17
Food and service prices risen rapidly
6
Services
Non-energy industrial goods
Processed food
Unprocessed food
Energy
Total index
Contribution to HICP inflation, % points
4
2
0
-2
2006
2007
2008
2009
2010
2011
2012
HICP = Harmonised index of consumer prices
Source: Statistics Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
18
Inflation will slow despite increases in indirect
taxation
HICP
5
HICP at constant tax rates
% change on previous year
4
3
2
1
0
2006
2008
2010
2012
2014
HICP = Harmonised index of consumer prices
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
19
It is vital to strengthen the public finances
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
20
Central and local government deficit to
contract slightly
Financial balance (right-hand scale)
Central government financial balance (right-hand scale)
Revenue (left-hand scale)
Expenditure (left-hand scale)
% of GDP
% of GDP
50
48
46
44
42
40
38
36
34
32
30
28
26
24
2000
2002
2004
2006
2008
2010
2012
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
2014
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
21
Trend in the public debt ratio will not turn
downwards without additional measures
General government EDP debt
Central and local government debt
Central government debt
90
% BKT:stä
80
70
60
50
40
30
20
10
0
1995
2000
2005
2010
2015
Sources: Statistics Finland, State Treasury and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
22
Sustainability problem is substantial
Need for public finance adjustment measured in terms of
total tax rate
Increased immigration
52
Improved productivity
Baseline
% of GDP
50
48
46
44
42
40
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
Sources: Statistics Finland and Bank of Finland.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
23
Need for public finance adjustment is
substantial
 The decisions of spring 2012 were important, but
economic developments are proving weaker than
then expected.
 The government’s objective of turning the trend in
the central government debt ratio downwards will not
be achieved without additional measures.
 More substantial measures are required to achieve a
sufficient level of surplus in the general government
balance.
 A decade-long adjustment programme is required.
– The key in policy choices is the impact on growth.
– In central government, the expenditure ceiling should be
gradually lowered to better match the funding base.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
24
Sustainable public finances cannot be
achieved without structural measures
 With early fiscal policy measures, the sudden and
hasty policy action at the beginning of the next
decade can be avoided.
 But sustainability cannot be secured without an
increase in labour supply.
 Labour input needs to be increased in all phases of
working life. This would even out the costs between
the different age groups.
– Earlier entry to working life
– Raising the effective retirement age
– Labour supply incentives
 In local government, it is vital to improve productivity.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
25
Financial stability
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
International operating environment remains
challenging, financial markets show early
signs of stabilisation
 Despite the improvement in the sentiment of the
financial markets, the European economy remains
vulnerable.
 Weak developments in the real economy would
expose the European banking sector to a decline in
asset prices and increase credit risks.
 Rapid implementation of decisions and measures
that promote financial stability is important.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Banking union to be implemented
 Banking union would stabilise the financial markets
and reduce the probability of banking crises.
 First the Single Supervisory Mechanism.
 In addition, a common crisis resolution system is essential.
 The aim is to reduce the costs to governments and
tax payers and make creditors bear more
responsibility.
 A centralised system for crisis resolution will facilitate the
controlled closure of even large banks without government
support.
 Creditors’ responsibility can be realised without banks
being forced into bankruptcy.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Confidence in European banks should be
enhanced by improving transparency
 It is difficult for markets to get an overall picture of
– asset encumbrance
– forbearance
 There are doubts about the comparability of the
methods used in capital adequacy calculation.
– Risk weightings in loans differ considerably, depending on
the method of capital adequacy calculation. Use of smaller
risk weightings than competitors may distort competition.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Makrotalous
Finnish financial
system stable – challenges
relate to indebtedness, the weak outlook
for the real economy and low interest rates
Macroeconomy
n kestävyys
Asuntojen hinnat
Banks’
resiliency
Housing
prices
Riskipreemiot
Risk premia
IV/2009
I/2012
Velkaantuneisuus
Indebtedness
III/2012
Sources: NASDAQ OMX Helsinki, banks, Statistics Finland and Bank of Finland.
SUOMEN
PANKKI | FINLANDS BANK
| BANK OF FINLAND
t: NASDAQ OMX Helsinki, pankit,
Tilastokeskus
ja Suomen
Pankki.
Growing level of household indebtedness
contains risks
 Growing indebtedness increases households’
vulnerability in weak economic environment.
 Household indebtedness should be reined in as
follows:
 Households should be prepared against a possible rise in
interest rates.
 Banks should comply with the Financial Supervisory
Authority’s recommendations on assessing the debtservicing capacity of housing loan applicants and maximum
loan-to-value ratios (LTVs).
 The authorities should be provided with adequate
macroprudential tools.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Euro & talous (Bank of Finland Bulletin) 5/2012
Feature articles:
 Rahoitusjärjestelmän vakaus (Financial stability in
Finland)
 Suomen julkisen talouden kestävyystarkasteluja
(Fiscal sustainability projections for Finland)
Helvi Kinnunen, Petri Mäki-Fränti and
Hannu Viertola
 Suomen kilpailukyky ja sen mittaaminen (Finland’s
competitiveness and its measurement)
Lauri Kajanoja
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
32
Summary
 The need for adjustment in the public finances is
already substantial in the present decade.
 Long-term sustainability of public finances cannot
be achieved without structural measures.
 Pay settlements must take account of
competitiveness in the open sector.
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
33
Thank you!
13.12.2012
Erkki Liikanen
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
34