been revised upwards, which means the figures for 2017 will inevitably be strong, too. Growth in already-hot housing construction will continue, although we expect it to flatten somewhat next year. Other building construction has been stronger than estimated, its peak likely postponed until 2018. The sharp rise in machinery and equipment investments raises the possibility of a ketchup bottle effect – i.e. pent-up investment needs bursting out all at once followed by a quick cool-down. We believe the upward trend to be more permanently fed, by the boom in the export industry. Machinery and equipment acquisitions will increase much more than 10% this year. Low interest rates encourage consumption According to preliminary data, private consumption grew in the first months of this year at the fastest rate in five years. Nevertheless, we expect consumption growth to slow down in the forecast period, despite improving employment. Consumer prices will rise less than previously expected, by around 1%, which will most likely curb wage pressure in the collective bargaining negotiations this autumn. A / Export demand has rapidly improved Volume of imports by Finland’s 31 most important trade partners B / Improved confidence boosts consumption Household confidence, consumption and disposable income Private consumption has primarily followed the rapid improvement in household confidence over the more modest increase in purchasing power. Growth in consumer spending has outpaced that of disposable income for three years in a row, which means households are saving less. We expect saving to decline further during the forecast period. C / Household saving on the decline Household saving Should we be worried about a lower savings rate? At the very least we can say that households are behaving exactly as expected. The ultimate purpose of the ECB’s low interest rates is to stimulate economic activity, as well as consumption. Moreover, the fact that consumption is outgrowing income does not necessarily mean that households are taking on more debt. It could also be a case of pensioner households spending the savings they have accumulated during their professional careers to finance their extra consumption which, from the point of view of balancing spending throughout one’s lifetime, is completely sensible. D / Public sector debt to GDP will not increase further Consolidated gross public sector debt / GDP, % A/ Export demand has clearly recovered in Finland’s key markets. B/ Households’ consumer spending has kept up with improved confidence, outpacing income growth. C/ Household saving will decline further during the forecast period. D/ Public sector debt has stabilized relative to GDP. Pasi Sorjonen Chief Analyst pasi.sorjonen@nordea.com +358 9 5300 5182 @PasiSSorjonen Source: Nordea Markets and Macrobond 3 / 2017 / Nordea Economic Outlook / 25
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