Country Forecast Finland January 2013 Updater

Country Forecast Finland January 2013 Updater

Overview

The six-party coalition that was installed in June 2011 is more diverse than usual, and this poses challenges to political stability. However, it has agreed on a programme of modest expenditure cuts and tax rises. The coalition does not include The Finns, a populist and anti-EU party which wants severe restrictions on immigration, although this party made significant gains at the general election in April 2011. Finland will be reluctant to participate in further measures to support weak euro zone countries after securing collateral for its contributions to the second Greek bail-out and the planned bail-out of Spanish banks. The economy has been relatively resilient in the face of the euro zone crisis, but has weakened. The Economist Intelligence Unit forecasts that after a small contraction of 0.2% in 2012, real GDP will record zero growth in 2013 and recover to average growth of 1.7% in 2014-17. Inflation is forecast at 2.8% in 2013 and an average of 2.4% in 2014-17, after an estimated 3.2% in 2012.

Key changes from last month

Political outlook

There is disagreement between the National Coalition Party (Conservatives, or KOK) and the KOK's centrist and left-leaning coalition partners over the KOK's plans for privatisation of state assets. We continue to expect the coalition to remain in office until the regular general election in 2015.

Economic policy outlook

A new draft bank tax bill is intended to raise EUR170m annually in 2013-15 for a well-capitalised and robust bank bail-out reserve fund.

Economic forecast

Because of contracting real GDP in the third quarter and further deterioration in business confidence during November, we have revised down our forecasts for the change in real GDP for 2013 to -0.2%, from 0.1% previously, and expect zero growth in 2013 (down from 0.3%).

However, the revision is moderate given still-low unemployment, a recent increase in retail sales volumes and consumer confidence, and stronger new manufacturing orders in October.

Do to the nature of this product there is no table of contents.