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2016-01-26

OP economists' economic forecast: Lacklustre economic growth on the cards

The global economy will not offer any support to Finnish economic recovery in
2016.
OP economists forecast a 0.8% GDP growth for Finland in 2016 and 1.6% growth
in 2017.

Global GDP growth will remain muted, only slightly at a higher rate than last
year. Global economic expansion will be based first and foremost on consumer
spending and demand for services. World trade and industrial investment will
continue to perform poorly. The outlook for 2017 is brighter but clouded by
various uncertainties.

The outlook for Finland is dampened by Russia, which is faltering in the wake
of the oil price decline. Its economic recession will be prolonged and deeper
this year than previously estimated. The US will continue to see moderate
growth, but inflation will remain very low. The Fed will hike its policy
rates less than estimated in December.

In the euro zone, economic growth will be moderately stable at about 1.5% but
not much stronger than in 2015. Euro-zone inflation is set to be lower than
expected due to the oil price drop. In 2016, prices will only rise about
0.5%, but in 2017 inflation is expected to accelerate to around 1.5%. The ECB
will have to contemplate new accommodative measures in the early part of 2016
due to weaker-than-estimated economic growth and inflation, but significant
new initiatives are not in sight.

Finnish economy still weak in 2016 - turnaround will require action

The Finnish economy will not yet experience a decent recovery in 2016, but the
outlook for 2017 is clearly brighter. OP's economists forecast a 0.8% GDP
growth for Finland in 2016 and 1.6% growth in 2017. The economic forecast for
2016 corresponds to the forecast issued last August.

- The export outlook for 2016 remains subdued. For instance, exports to Russia
will continue to decline steeply. Yet, the ground will be fertile for a
recovery in 2017 if Finland can improve its cost-competitiveness with
economic policy measures. Failure to do so would lead to further weak years
and stand in the way of a new economic rebound, says OP's Chief
EconomistReijo Heiskanen
.

This year growth will rely almost entirely on a pick-up in domestic demand.
Consumer spending growth will remain moderate with the practically
non-existent inflation underpinning purchasing power. Capital spending, in
turn, will recover in the wake of large projects, revitalised residential
construction and companies' improved financial positions. Growth in domestic
demand will continue at the pace of this year in 2017, too.

Inflation will remain close to zero in 2016. OP's economists expect to see a
minor rise of 0.2% in consumer prices. In 2017, inflation will accelerate to
1% largely as a result of a moderate increase in commodity prices.

- Although the oil price is not exactly a jackpot, it can be considered a
reasonable lottery win, continuing to boost consumption this year and
improving corporate finances and investment prospects as well. Nevertheless,
in 2017 consumption growth should already be based on higher employment
because the cheap oil and loan repayment holidays will no longer spur
consumption, Reijo Heiskanen says.

Employment will start to recover gradually during 2016 and grow slightly next
year. The unemployment rate will drop only slightly from 9.4% in 2015 to 9%
in 2017.

Following the lower price of oil, the current account surplus will increase to
about 1% of GDP this year. In 2017, this trend will come to a halt despite a
pick-up in exports when import prices will start to rise.

The public deficit will remain at the upper end of the EU criteria for 2016
this year, too, and will not gain balance until the economy starts to recover
in 2017. Even then, the deficit will only decrease to slightly less than 3%
of GDP. The planned spending cuts will not boost public finances to a greater
extent until in 2018-19.

The global and Finnish economies are still fragile and exposed to risks. The
risks associated with the global economy and Finland's export outlook are
still higher than average.

- If these risks materialise, Finland would face an even worse scenario than
Japan. In this scenario, public debt increases and the private sector is
struggling in a deflationary spiral while the economy is suffering from high
unemployment. Even though the cyclical situation evokes some hope, at the
same time the threats have become ever gloomier, Reijo Heiskanen says.

Further information and interview requests:

Reijo Heiskanen, Chief Economist, tel. +358 50 568 6623, Twitter: @Reiskanen

Timo Hirvonen, Senior Economist, tel. +358 40 549 2476, Twitter @HirvonenTimo

Maarit Lindström, Consumer Economist, tel. +358 40 531 8262, Twitter
@LindstromMaarit

OP Communications, tel +358 50 523 9904

OP Financial Group is Finland's leading financial services group providing a
unique range of banking, wealth management and insurance services.
OP Financial Group's mission is to promote the sustainable prosperity,
security and wellbeing of its owner-customers, 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 Financial Group consists of about 180 member cooperative banks, its central
cooperative OP Cooperative, and the latter's subsidiaries and affiliates.
The Group has a staff of 12,000 and
4.3 million customers.

As laid down in the applicable law, the member credit institutions and OP
Cooperative are ultimately jointly and severally liable for each other's
debts and commitments.
Joint and several liability within OP Financial Group is based on the Laki
talletuspankkien yhteenliittymästä Act (Act on the amalgamation of deposit
banks).
Pohjola Bank plc and OP Mortgage Bank are responsible for OP's funding on
money and capital markets.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Pohjola Pankki Oyj via Globenewswire

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