Ministry of Finance and research institutes disagree on outlook of economy
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The Ministry of Finance and key research institutes disagree on the current outlook of the Finnish economy.
The ministry believes that the peak of the current economic cycle has been passed, and that next year's economic growth rate will be lower than this year.
In connection with the budget talks last week, the Finance Ministry reported that it had lowered its growth rate forecast for 2005 to 2.7 percent. This year's prediction is at 2.9 percent.
Research institutes are much more optimistic. They maintain that the peak of the cycle is yet to come, and that economic growth will accelerate next year.
Eero Lehto, forecasting chief at the Labour Institute for Economic Research (PT), wondered where the ministry's figures come from. PT raised its forecast for this year's growth rate by 0.3 percentage points to 3.3 percent on Tuesday.
PT expects the Finnish gross domestic product to grow by 3.6 percent in 2005. Among the reasons behind the positive outlook are strong signals regarding industrial output, exports, and investments.
According to PT, exports will grow by 2.8 percent this year, and 4.8 percent next year. "The outlook in the forest industry is excellent", Lehto commented.
PT also believes that Finland's employment situation will improve, with the unemployment rate falling from 8.8 percent to 8.6 percent next year.
Director Eero Kallio from the Ministry of Finance explained that the ministry's pessimism regarding 2005 is a result of the high world market price of crude oil, as well as the budget and current account deficit problems in the U.S.
If the growth of the U.S. economy begins to slow down, the dollar may depreciate, which would dampen Finnish exports.
Kallio also stated that domestic demand may weaken next year. However, he pointed out that even with the lower forecast for 2005, the growth rate would still be almost at this year's level.
Pasi Sorjonen, the head of forecasting at the Research Institute of the Finnish Economy (ETLA), feels that the ministry's reasoning is sound. Sorjonen has drawn the opposite conclusion from the figures nevertheless: in June, ETLA forecast a growth rate of 3.1 percent for next year, and is expected to further raise the prognosis in its new report next week.
Helsingin Sanomat
