Bank of Finland Governor expects stable economic growth to continue

Erkki Liikanen

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"Economic growth in Finland is expected to remain stable", said Erkki Liikanen, the Governor of the Bank of Finland on Wednesday, as he presented the bank's economic forecast, which comes out twice a year.
      The Finnish central bank predicts that economic growth in Finland will reach 1.6% this year.
      Liikanen calculated that the labour dispute in the paper industry in the early summer cut 0.8 percentage points from this year's growth figures.
      As for next year, the Bank of Finland has increased its growth forecast from 2.9% to 3.7%. The high figure is partly due to the lower comparative level for this year caused by the problems in the wood processing industry.
     
The Bank of Finland forecasts are in line with the most recent figures put out by various banks and research institutes, all of which indicate that the Finnish economy is growing better than that in the euro zone on average.
      Liikanen mentioned three factors that have spurred growth in Finland.
      Domestic demand has been strong in recent years. Work productivity has also grown, and inflation is at a moderate level, Liikanen says.
      The Bank of Finland expects prices to rise by an average of 0.9% this year and 1.6% next year. The rate is significantly lower than the European Central Bank's maximum medium-term level of two percent.
     
Figures released earlier in the week indicate that the average annual rate of rising prices in the euro zone could be between 2.5% and 2.7%.
      There are indications of higher inflation in Germany, which is clearly the largest single economy in the zone.
      Another indication of possible higher inflation was the report of an increase in the M3 money supply in the euro zone. The supply rose by 8.1%, which is clearly above the ECB target of 4.5%.
      If inflation increases, the ECB could respond by tightening its monetary policy - that is, by raising interest rates.
      Liikanen is one of the 18 members on the ECB's Governing Council, which decides on interest rates. On Wednesday he would not say if he tought that the recent news on inflation would increase the likelihood of higher interest rates.
      The recent rise in the price of oil could add inflationary pressures. The Bank of Finland has raised its forecast for the long-term price of oil from 40 to 50 US dollars a barrel. On the other hand, expensive oil reduces economic growth, which eases inflationary pressure.


Links:
  Bank of Finland press release 28.9.2005

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