Erkki Liikanen, Bank of Finland Euro & talous 5/2016

1. Unrestricted
Bank of Finland
Monetary policy and economic
outlook
Euro & talous 13 Dec 2016
Erkki Liikanen
13.12.2016 1

2. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
On the economic outlook for the euro area
and monetary policy decisions by the ECB
Governing Council last Thursday
2Erkki Liikanen13/12/2016

3. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Euro area growth outlook
Economic expansion in euro area expected to
proceed at a moderate but firming pace.
Monetary policy supports euro area demand and
has facilitated deleveraging.
Improvements in corporate profitability and
favourable financing conditions boost investment.
Eurosystem staff macroeconomic projections,
December 2016:
 GDP growth 2016: 1.7%
2017: 1.7%
2018: 1.6%
2019: 1.6%
3Erkki Liikanen13.12.2016

4. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Euro area unemployment rate has
gradually fallen
4Erkki Liikanen13.12.2016
6
7
8
9
10
11
12
13
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Euro area unemployment rate, %
Source: Macrobond.
32755

5. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Euro area inflation outlook
Inflation (HICP) was faster in November than in
previous months, but this reflected to a large extent
the increase in energy inflation.
No signs yet of a convincing upward trend in
underlying inflation.
Eurosystem staff macroeconomic projections,
December 2016:
 Inflation
2016: 0.2%
2017: 1.3%
2018: 1.5%
2019: 1.7%
5Erkki Liikanen13.12.2016

6. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Inflation in major economic areas
6Erkki Liikanen13.12.2016
-2
-1
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016
United States Euro area Japan
Consumer price inflation, %
Source: Macrobond.

7. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
ECB Governing Council on 8 Dec 2012:
Continued accommodative monetary policy
will support growth
 ECB Governing Council decided to continue the
expanded asset purchase programme until the end
of 2017
– and, if necessary, beyond, until the Governing Council sees a
sustained adjustment in the path of inflation consistent with its aim.
 Other measures in force
– Low monetary policy interest rates
– Targeted longer-term refinancing operations
 Forward guidance
– Monetary policy will remain accomodative for an extended period of
time.
7Erkki Liikanen13/12/2016

8. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
ECB Governing Council on 8 Dec 2012:
Expanded asset purchase programme will be
continued
 Purchases will continue at a monthly pace of EUR
80 billion until 31 March (by virtue of earlier
decision).
 Thereafter, purchases will continue at EUR 60
billion per month until the end of 2017 (according
to the decision of last Thursday).
 If necessary, more securities can be purchased
and/or they can be purchased for a longer period.
8Erkki Liikanen13/12/2016

9. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Effects of monetary policy in Finland
 Supports euro area economy and thus Finnish exports
 Lowers financing costs in Finland
⇨ Supports consumption and investments
 M. Haavio, J. Kilponen, T. Kortela and M. Sariola:
‘ECB's extended asset purchase programme has
significantly bolstered Finnish growth’
www.eurojatalous.fi
Model estimation: impacts of December 2015
and March 2016 decisions on Finnish GDP
9Erkki Liikanen13/12/2016

10. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Global economy: growth continued,
some uncertainties are political
10Erkki Liikanen13.12.2016

11. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Global growth has continued, albeit at a
slower pace than before
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0
2
4
6
8
10
-2
-1
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016
Euro area United States Japan China (right-hand scale)
GDP change on previous year, %
Sources: Macrobond and OECD.

12. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Economic outlook contains
uncertainties related to policy choices
 US economic policy?
 UK economic relations after Brexit?
 Uncertainties also in other countries
 Supporters of globalisation and international
relations forced onto the defensive
 But there is a great need for international
cooperation in many areas: climate change,
refugee issue, economic developments
12Erkki Liikanen13.12.2016

13. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Major topic of discussion: Globalisation and
inequality. Lack of opportunities for many
individuals.
Index, 1990 = 100 Index, 1990 = 100
Households’ disposable income, OECD average
Top 10% of households
Bottom 10% of households
Average income
Median income
Source: OECD (OECD Economic Outlook, 1/2016, p. 65).
13Erkki Liikanen13.12.2016

14. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Technology and globalisation have created
prosperity but also a need to provide support
for those who will lose out in the process
 Technological advances and globalisation have
generated economic prosperity
 Advanced economies experience an increasing
need to control negative effects on different
population groups
– Necessary to support economic readjustment
and care for those who will lose out in the
process
– Educational system, social security, labour
market institutions
14Erkki Liikanen13.12.2016

15. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Inclusive growth. Bank of Finland
publications
 Lauri Kajanoja: Mukaan ottava talouskasvu Suomessa
(Inclusive growth in Finland)
 Juhana Hukkinen ja Lauri Vilmi: Tuloerot kehittyneissä
maissa, syyt ja seuraukset (Income inequality in advanced
economies, cause and effect)
 Meri Obstbaum ja Juuso Vanhala: Polarisaatio Suomen
työmarkkinoilla (Polarisation on the Finnish labour
market)
 Petri Mäki-Fränti: Alueelliset tuloerot Suomessa 2016
(Regional income differences in Finland 2016)
 Jarkko Kivistö: Suomen rakennemuutos alueiden
näkökulmasta (Regional perspective to restructuring in
Finland)
 Karlo Kauko, Pertti Pylkkönen, Eero Savolainen, Jukka
Vauhkonen: Pankkikilpailun merkityksestä PK-yritysten
rahoituksen saatavuudelle (On the importance of
competition between banks for SME’s access to funding)
15Erkki Liikanen13.12.2016

16. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Finnish economy returned to growth.
There has been progress, but some
problems still need to be resolved.
16Erkki Liikanen13/12/2016

17. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Three comments
 On competitiveness and the
Competitiveness Pact
 On future fiscal pressures
 On the importance of new businesses for
productivity and employment growth
17Erkki Liikanen13.12.2016

18. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Advances in competitiveness
 Competitiveness Pact
reducing labour costs
 Growth in unit labour costs
much less than rest of euro
area
 Demand for labour growing
 Cost reductions will partly
pass through to prices
 Both exports and investment
picking up
18Erkki Liikanen13.12.2016
-2
0
2
4
6
8
10
2006 2008 2010 2012 2014 2016 2018
Finland Euro area
% change on previous year
Sources: Eurostat, ECB and calculations by the Bank of Finland.
Unit labour costs

19. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Finland’s economy growing, but public
finances remain troubled
 Public debt is growing partly due to unemployment
 New assessment of fiscal sustainability gap 3%
 Burden of the following costs is being transferred
to today's youth
– Costs of nursing the elderly
– Pension costs for older generations
– Costs of servicing the growing public debt
 Increasing number of young people not in
employment, education or training
 Due to the above, measures are still needed to
strengthen the public finances.
19Erkki Liikanen13/12/2016

20. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Good conditions for company start-ups
and equal possibilities to grow
Productivity and new jobs:
 Labour productivity often higher than average in
young companies
 Gradual renewal in established companies most
important source of productivity growth
 Most jobs are created in a small group of rapidly
growing, often young companies
 Significance of SLUSH and new companies in the
economy
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21. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Finnish economy's capacity for renewal
creates productivity and jobs
21Erkki Liikanen13/12/2016

22. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Thank you!
22Erkki Liikanen13.12.2016