13 June 2007
REVIEW OF BUSINESS CONDITIONS
No Indications of Overheating in the Finnish Economy
The Finnish economic outlook remains good. Tapiola Bank has slightly written up the estimate on the economic growth 2007 and 2008. The Finnish economy will grow by 2.8 percent next year, and the inflation is expected to increase significantly. The unemployment rate is estimated to decrease further.
The risk of economic overheating is not significant.
– The outlook for 2007-2008 is still good, but not too good, Tapiola Group Senior Economist Jari Järvinen states.
- From a business condition point of view, it is reasonable to postpone tax relieves, but structural factors require continued tax relieves, Järvinen says.
The long-term outlook for Finland is substantially weaker than the short term outlook. The greatest single risk is still an unexpected and intense stagnation of the US economic growth.
FED is More Likely to Raise than Reduce Interest Rates
The deceleration of the global economic growth stem from the industrial countries but the continuous strong economic growth in the developing economies has balanced the situation. A stronger decrease on the US housing market could result in a reaction where the global growth slackens significantly. However, Järvinen believes that in the long term it is possible to maintain a slow global growth due to the US current account deficit.
The euro area inflation is estimated to remain at about 2 percent, and there are no signs of demand-inflation. According to Järvinen, the ECB will continue to raise the interest rates. The euro remains strong since the dollar will weaken towards the end of the year in comparison with other major currencies as a result of the decrease in the US economic growth as well as the decreased difference between the interest rates. Due to the revival of the US industrial production, FED is more likely to raise than reduce interest rates.
Presently the growth in the euro area is strong, but the external operational environment is deteriorating which raises questions on the growth sustainability.
Housing Market is Calming Down
– Despite higher prices, there are signs of steadiness on the housing market, says Real Estate Investment Director Vesa Immonen at Tapiola Real Estate Ltd. According to Immonen, the number of trades has fallen, the sales periods have become longer and the new building has decreased in comparison with 2006.
However, the decrease is not significant because the housing demand still exceeds the expectations. Particularly in the metropolitan area the housing trade is still brisk, in some areas even intense. In the metropolitan area the prices are probably increasing moderately but not as fast as during the previous years.
- We estimate that the prices will increasingly differ from city to city and district to district.
Renting is again a worthy alternative to owning.
– Rents have not climbed as strong as the owner-occupied apartment prices, Immonen comments.
Further Information
Review of Business Conditions:
Jari Järvinen, Senior Economist, Tapiola Group
Tel. +358 9 453 2049, forename.surname@tapiola.fi
Housing Market:
Vesa Immonen, Assistant Manager, Tapiola Group
Tel. +358 9 453 3412, forename.surname@tapiola.fi