W / Export prices are rising in lockstep with import prices: Export prices by sector and import prices, index X / Labour market contribution of 55+-year-olds on the rise: Labour market participation rates by age group W / The increase in export prices has been broad- based, keeping Finland’s terms of trade balanced despite the rapid rise in energy prices. X / The labour supply from those aged over 55 has grown vigorously in recent years, thanks to various pension reforms. As for commodities and materials, imports from Russia can mostly be replaced with imports from other countries or Finnish production, for example in the case of wood- chips. The import restrictions on raw materials and com- modities could cause stoppages in manufacturing and construction. As a result of the war, the export prices of raw materials and commodities produced in Finland have shot up, keeping Finland’s terms of trade unchanged and improv- ing the earnings of many export businesses. Rising prices are treating companies very unequally at the moment, with some seeing a swift rise in expenses while others are enjoying higher global market prices for their products. The price competitiveness of the Finnish economy is an- alysed in more detail in the theme article on page 27. Uncertainty is toxic for investments Investments are suffering from increasing economic un- certainty, with surveys indicating that investment projects have been postponed as the economic outlook has be- come fuzzier. However, there are plenty of investment needs in the manufacturing sector since capacity is restricting produc- tion and the green transition is taking place faster than expected. Wind power, for example, is one of the areas where a great deal of investment is taking place. The number of permits for residential construction has begun to decrease at the same time as growth in the number of new building starts has dwindled. The con- struction sector is expected to slow down as the increase in construction costs and housing demand level off. Con- struction will continue to remain at a high level this year because a record number of projects were started last year. Housing market reaching an equilibrium resulting in price rises across the country. Newly built apartments have sold well this year, too. Demand for housing will calm down this year as consumption shifts back to services, real purchasing power weakens and in- terest rates rise. As a result, the increase in housing prices is expected to be modest this year There is oversupply in some places in the rental market, causing rents to fall, especially in the Greater Helsinki area. However, demand for rental housing is expected to recover by the autumn, when students return to the lec- ture halls, employment in the service sector improves and demand for short-term accommodation grows on the back of reinvigorated tourism. Public finances face permanent deficits The public sector deficit was 2.6% of GDP last year, which was less than half of the deficit in 2020. Economic growth has boosted tax revenues, while the lower unemployment rate and the lifting of Covid-19 restrictions have alleviated expenses. The government added around 2 billion euros to its budget for this year and next to fund defence spending and general readiness. In addition, a rise in interest rates will increase the public sector’s interest expenses. Due to the additional expenditure, the public sector deficit will not significantly decrease during the forecast period. Juho Kostiainen Economist juho.kostiainen@nordea.com @JuhoKostiainen 26 / Nordea Economic Outlook / 2 / 2022
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