Press release, 30 January 2012
OP-Pohjola's economists expect the economic situation to turn for the better during the spring. Recent economic surveys have indicated that there are already more hopeful signs on the horizon.
Most factors that have slowed down world economic growth are slowly fading away or their role is becoming less important. OP-Pohjola's economists expect the world economy to recover within the next 12 months and reach somewhat the same average growth rate as in 2011.
US economic growth rate has already accelerated, this growth being staid but relatively steady and broad-based. The Federal Reserve is expected support economic growth by keeping its key interest rates exceptionally low next year too. Added uncertainty may be caused by the approaching US presidential election and the management of public finances.
Growth in emerging economies will stabilise at a good level and is partly expected to rebound in the course of the year. Economic growth in China will remain subdued by its own standard during the first half but will pick up in the course of the year, as a result of economic policy easing.
Short recession in the euro area
OP-Pohjola's economists predict that the euro-area will face a short recession. Economic trends in the euro area usually follow those of the rest of the world, and this time is no exception either. In fact, some economic indicators have already begun to improve.
Chief Economist Reijo Heiskanen points out that the economic recovery will proceed at a subdued pace and be uneven and uncertain.
- In light of the occasionally slow progress in resolving the European sovereign debt crisis, we will probably see a weak economic situation in the second half of the year too. The euro area is going from worse to bad.
- Inflation in the euro area is decelerating but will in the next few years remain slightly above the ECB's target. Nevertheless, the ECB will this year continue to conduct an easy monetary policy as a whole, with a view to ensuring financial market stability. The key rate is expected to vary between 0.75 and 1.0 per cent at the end of the year and the 12-month Euribor rate to drop to around 1.5 per cent.
Finnish growth rate this year at one per cent
OP-Pohjola's economists project the Finnish economic growth rate to stand at 1.0 per cent this year. The weakest period should be the winter season when the economy is expected to face a recession. After that, a recovery in the export market and a cheaper euro should prop up exports. Consumer spending is expected to grow at a moderate, steady pace but capital spending is anticipated to turn slightly negative. Next year, the economy should grow at a rate of 2.0 per cent.
Unemployment is anticipated to rise temporarily this year but will, on average, remain at somewhat the same rate as in the previous year. The inflation rate is expected to decelerate but is anticipated to stand at over 2 per cent due to tax hikes.
Mr Heiskanen reckons that, despite the quite hopeful economic outlook, the Finnish economy will be facing an increasing number of future challenges, given that the previous economic buffers have been depleted. The balance on current account has also worsened, showing a deficit. Finland will have to rely on foreign borrowing to finance its widening fiscal deficit. In the economic policy, the country will have to take seriously the risk of losing its top credit rating.
- The greatest risk is still associated with managing the debt crisis. It is probable that the situation will be kept under control but it is highly possible that uncertainty may increase occasionally, and we still cannot rule out an escalation of the crisis.
For more information, please contact: Reijo Heiskanen, Chief Economist, tel. 010 252 8354
OP-Pohjola Group is Finland's leading financial services group providing a unique range of banking, investment and insurance services. The Group has the mission of promoting the sustainable prosperity, well-being and security of its owner-members, customers and operating regions through its local presence. Its objective is to offer the best and most versatile package of loyal customer benefits on the market. OP-Pohjola Group consists of some 200 member cooperative banks and the Group's central institution, OP-Pohjola Group Central Cooperative, with its subsidiaries and closely-related companies, the largest of which is the listed company Pohjola Bank plc. With a staff of more than 12,000, OP-Pohjola Group posted consolidated earnings of 575 million euros before tax in 2010 and had total assets of 84 billion euros on 31 December 2010. The group has over four million customers.