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Finland Business Forecast Report Q2 2014

  • January 2014
  • -
  • Business Monitor International
  • -
  • 27 pages

Core Views

Over the short term, we believe that Finland’s fiscal situation remains
one of the most robust in Europe, and do not expect it to suffer from
a ratings downgrade in the near future, expecting it to remain one
of just four remaining countries in the eurozone to be awarded AAA
status from all three major ratings agencies.
However, over a longer time horizon, looming structural challenges
pose a threat to public debt dynamics and may impede fiscal flexibility.
Several key sectors, including forestry and papermaking, shipbuilding
and telecommunications remain in terminal decline, while high
labour costs are acting as a deterrent for investment and importers
of Finnish goods, despite strong structural competitiveness. This
has cast doubt over the government’s ability to sustainably increase
aggregate demand through fiscal stimulus.

Major Forecast Changes

We have revised down our estimates for real GDP in 2013, and now
expect a contraction of 0.8%, versus a previous forecast of 0.2%,
followed by growth of 1.1% in 2014 and 1.6% in 2015.

Key Risks To Outlook

A deeper than anticipated eurozone recession represents a severe
downside risk to our export forecasts for Finland. While we are
already pencilling in a significant slowdown, a eurozone real GDP
contraction of 1% or greater could severely impinge upon Finland’s
highly integrated export market, weighing heavily on Finland’s real
GDP growth in 2013 and beyond as a consequence.
While not our core view, due to the strong historical legacy of
consensus-based political decision making in Finland, we do not rule
out the possibility that the rise of the populist euro-sceptic parties
could lead to more difficult domestic policy formation.

Table Of Contents

Finland Business Forecast Report Q2 2014
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
No Let Up In Austerity 8
Despite solid key creditworthiness metrics, structural issues will prevent the Finnish government from adopting looser fiscal policy as
the country enters its third technical recession Nonetheless, we believe that despite poor demographics, Finnish policy flexibility should
allow the country to avoid accumulating excessive public debt over the medium-term
Table: Political Overview 8
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings 11
Economic Activity 12
Long-Term Growth Drivers Unclear 12
The outlook for Finnish economic activity has not improved substantially, and the economy is struggling to find growth drivers as
austerity, high unemployment and a cooling housing market weigh on household consumption and investment Key industries appear to
be caught in terminal decline, reducing positive feed-through from improving eurozone demand
Regional Exchange Rate Policy 14
Euro Strength Unsettling The ECB 14
Passive monetary tightening and improved investor sentiment will compound policy inertia from the ECB has keep the euro strong
heading into 2014 However, weak economic growth, high unemployment, euro strength, deflation risks, a potential LTRO-cliff
and anaemic structural reform are becoming increasingly unpalatable for policymakers As such, we expect substantial monetary
intervention in 2014
Table: Eurozone Currency Forecast 14
Regional Monetary Policy 16
ECB Cut: Pushing On A String 16
A cut in the ECB's refinancing rate will do little to ease monetary policy in the eurozone, given the fractured credit transmission channel
and passive tightening resulting from banks repaying LTRO funds While there are few easy options to ease policy in the near term, we
warn that if the long running disinflationary trend evolves into full blown deflation, the ECB may have to look at more aggressive forms of
policy stimulus
Chapter 3: Key Sectors 19
Pharmaceuticals 19
Executive Summary 19
Industry Forecast 19
Table: Pharmaceutical Sales, Historical Data And Forecasts 20
Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data and Forecasts 21
Table: Prescription Drug Market Indicators, Historical Data and Forecasts 21
Other Key Sectors 23
Table: Telecoms Sector Key Indicators 23
Table: Infrastructure Sector Key Indicators 23
Table: Autos Sector Key Indicators 23
Business Monitor International Ltd www businessmonitor com 3
Chapter 4: BMI Global Assumptions 25
Global Outlook 25
Momentum To Continue In H114 25
Table: Global Assumptions 25
Table: Developed States, Real GDP GrowtH, % 26
Table: Emerging Markets, Real GDP Growth, % 27

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