Consumers believe Finnish economy will take turn for worse

Economists more upbeat about prospects

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The Statistics Finland monthly consumer survey seems to evoke slightly more optimistic sentiments in March than it did in February.
      The majority of the 1,500 respondents continue to view the future of their personal economy as optimistic, but with regard to the national economy, those who believe that things will take a turn for the worse formed a clear majority by about ten percentage-points.
      In February well over half of the respondents envisaged that unemployment would increase. In this respect, there has been a clear change: now a slight majority of people believe that unemployment will actually decline.
      For a figure for annual inflation from this moment onwards, the respondents estimated an average of 3.6 per cent.
     
The economists from forecasting agencies and banks have a view distinctly different from that of the consumers when it comes to the development of Finland’s national economy. The latest “professional” economic trend prediction was produced by the Research Institute of the Finnish Economy (ETLA) on Wednesday last week.
      According to the ETLA forecast, Finland’s gross national product will grow this year by 2.7 percent, and next year this growth rate will increase. The employment situation will continue to get better, albeit at a slightly slower pace. This year’s inflation rate will be 3.2 percent, ETLA predicts, and next year it should drop under the two per cent mark.
      ETLA’s estimate of Finland’s economic development is in many respects slightly more positive than predictions by some other economic trend forecasters. But the general view seems to be that the economy will continue to grow, the employment situation will continue to improve, and the public finance balance will remain clearly in surplus.
     
Long-time bank economist Lauri Uotila of the Sampo Bank has made a hobby of a sort out of comparing the consumers’ presumptions with reality. “The consumers’ pessimism seems to be in overdrive”, he comments on the consumer barometer’s latest findings.
      “Finland’s economic situation is somewhat ambiguous as a framework for questions for the public”, Uotila says.
      Uotila believes that people will use an altogether different logic when viewing their personal economy. When contemplating the financial situation of one’s own household, one does not take into account the possible slowing down of the income development or reduction of purchasing power, change within change. As long as the indicators remain on the positive side, one usually gives one’s own economy the “thumbs up” sign.
     
The consumer barometric estimates regarding the personal and the national economy have customarily produced somewhat different curves from one another. Estimates of the outlook for the Finnish economy have fluctuated quite a bit even during this exceptionally long stretch of “fat years”. Simultaneously, the public's views of their own financial situation have remained stubbornly positive.
      In Uotila’s opinion, the citizens' views of their own economy have considerable prediction value. Consumption grows when people have confidence in the outlook for their personal fortunes. The purchase-planning questions of the consumer barometer are similarly valuable.
      Many have plans to buy a home or to take out a loan. Therefore, in Uotila’s view, no considerable downward trends should be expected in Finland’s housing market, for instance.
     
The consumers' predictions with regard to the annual rate of inflation have in recent months been somewhat realistic, with an estimated price increase of consumer goods in the region of four per cent.
      “The respondents’ inflation prediction for the coming year is 3.6 percent. That is slightly too high”, Uotila says. In his view, people tend to trust that inflation in a period to come will continue as it was in a period that has just ended.


Previously in HS International Edition:
  Finnish consumers´ confidence in economy continues to weaken (29.1.2008)

Links:
  Statistics Finland: Consumer Survey 3.-17.3.2008

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