Economic growth slows down significantly in early part of year
Bank of Finland Governor warns of possible rise in interest rates
Erkki Liikanen
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Economic growth in Finland has been discernibly slower in the early part of the year than previously expected. The ongoing labour dispute in the pulp and paper industry is expected to steepen the trend further.
Statistics Finland published the GDP figures for the first quarter of 2005 on Thursday. From January to March 2005 growth in GDP was 0.1% over the figure of the last quarter of 2004, and 1.1% higher than in the first quarter of last year.
Growth forecasts for the year set by banks and economic think-tanks at the beginning of 2004 were consistently three percent or more. These figures have been scaled back, but have not yet gone below two percent.
The main reason for the dwindling growth rates has been the decline in industrial output and the weakening of economic prospects in the euro zone, which is where more than half of Finland's exports go.
Aktia Bank economist Timo Tyrväinen says that cyclical trends are clearly declining. He notes that this is being exacerbated by the labour dispute in the paper industry.
"While I do not want to paint a picture of a recession, or even a slowdown, I wish to point out that in the early 1990s, the recession was preceded by significant labour disputes at a stage in which we were already going in a worse direction", Tyrväinen says.
On a more positive note, the National Board of Customs reported on Thursday that growth in exports had increased during the spring. Growth in the value of exports in April was 11%, and during the whole spring it was 8 percent.
Bank of Finland Governor Erkki Liikanen would not give a direct answer on Thursday, when asked for an assessment on the future of the euro. He emphasised the independent position of the European Central Bank, and its mandate to maintain price stability.
"When this goal is reached, we can promote the achievement of other goals", Liikanen said in a press conference at the Bank of Finland.
He also said that the inflation pressures in the euro zone are under control, but that there are risks. Liikanen added that the low interest rate level, which has lasted for a long time, could bring with it the danger of excessive indebtedness in a situation in which the ratio between debt and available income has grown since 1997.
"People are taking very long-term loans, which means that it is clear that during the repayment time, the interest rate level could end up being several percentage points higher than the present level", Liikanen warned.
He feels that Finland's financial system is stable in spite of the long period of low interest rates and the resulting growth in borrowing.
Helsingin Sanomat
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| 10.6.2005 - TODAY |
 Economic growth slows down significantly in early part of year |
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