The world economy is expected to grow almost at the same rate this year as in 2010. In 2012, world economic growth will slow down but will remain relatively strong. The euro-area economy is expected to grow at an average rate in the next few years. Growth rate differences between countries will gradually diminish but countries hit by the debt crisis will experience lacklustre growth next year too. This forecast is based on the estimate that the effects of sorting out the crisis on economic development will remain small.
- Favourable world economic development may come as a surprise to many. However, the risk of inflation is gradually looming on the horizon, which may already next year slow down growth in emerging economies in particular, opines Reijo Heiskanen, Chief Economist, OP-Pohjola Group.
The euro-area inflation rate should remain over two per cent in the next few years. The ECB may sit tight until the worst of the euro-area debt crisis is over and the economic recovery is on a sustained basis, because accelerating inflation is due to external factors. The winter 2011-12 may see the fulfilment of the criteria for a raise in interest rates.
OP-Pohjola Group's economists expect the ECB to raise the main refinancing rate to 2.25% by the end of 2012. Market rates are anticipated to edge up. For example, the 12-month Euribor is expected to stand at over two percent in the first quarter of 2012 and at over three per cent by the end of 2012.
Swift economic growth in Finland
The Finnish economy is expected to continue its swift growth in 2011. OP-Pohjola Group's economists have revised up their GDP growth forecast for the current year from 3.3% to 3.8%. The projected GDP growth for 2012 is 3.3%. Economic growth is broad-based because exports, consumer and capital spending are increasing well. In 2012, economic growth is expected to slow down somewhat, due mainly to subdued exports.
In the spring of 2012, Finnish GDP is projected to grow above its previous peak level. Unemployment is also expected to see a reduction in 2012 close to the low 2008 rate. Next year, the average unemployment rate is anticipated to stand at 6.8%. The number of those employed in 2012 should be over 60,000 greater than in 2010.
The inflation rate will rise much more than previously expected. According to our recent forecast, consumer prices will increase by 3.0% this year and by 2.8% next year, with rising energy and food prices being the main reason for the higher inflation rate this year.
According to Heiskanen, accelerating inflation will not prove temporary because the economy is expected to see more widespread price increases in 2012.
- Given that improving employment will fortunately offset the effect of weaker spending power arising from accelerating inflation, consumer spending can grow at a moderate pace.
- The greatest risks exposed by the Finnish economy are associated with rising costs and non-compliance with strict fiscal discipline. However, export markets will face the greatest threats in the short term.
For further information, please contact Mr Reijo Heiskanen, Chief Economist, Tel. +358 10 252 8354.