PRESS RELEASE 19 March 2009
More than half of Finns plan their finances just for a couple of months ahead, even though a bigger number of Finns see shaky personal employment outlook during the next couple of years. Tapiola Bank’s first review of business conditions 2009 concentrated on the Finnish citizens views on their private economy and future preparations during the current financial crisis. In accordance with Tapiola’s prognosis, the Finnish economy outlook will remain negative well into the year 2010. The economic growth will decrease by 4% in 2009. The inflation is estimated to reach -0.9%. The short-term outlook in the housing market is dim.
Some 20% of Finns do not consider their purchasing power to have decreased during 2009, but a greater number of Finns than before think that their purchasing power has remained unchanged. No earlier than in the previous review of business conditions in August 2008, almost one third of the respondents experienced lower purchasing power. Now, however, the estimates appear to correspond to the situation a year ago.
However, 14% of the respondents feel that their personal employment situation will weaken during the upcoming years, whereas this number in the previous surveys was 6-7%. Despite the shaky personal employment outlook, 57% of Finns plan their finances only for a couple of months ahead. The number of persons living one day or month at a time has only slightly decreased from a year ago. One fifth of the respondents state that they plan their finances a year ahead.
- The reason for this might as well be the fact that many of the respondents had not yet experienced lower purchasing power. Due to the recent taxation and salary solutions, the real income of working persons might even increase this year. Surprises can arise any time, and therefore, it is advisable to budget for them by planning personal finances over the short and long term, states Tapiola Bank Deputy Managing Director Marja Pajulahti.
One Third of Finns Decrease Consumption – Regional Differences Evident
About one fourth of Finns do not save for the future. The number has decreased by 5 percentage points from a year ago. Some 40% of the respondents save regularly. About one third of the respondents state that they have decreased consumption due to the economic outlook. The first action seems to be to cut down concrete purchases such as clothes (47%), major household items (43%) and restaurant services (42%). Some 45% of Finns will cut down trips abroad.
The response shows significant regional variation. Inhabitants in the Oulu region share the most reserved opinions, since one fourth of them expect their employment situation to worsen during the next couple of years. When compared to the other growth centres of Finland, a significantly greater number of people in Oulu (39%) will cut down consumption. Inhabitants in the Turku region share the most confident opinions, since almost one third estimates their employment situation to improve during the next couple of years. The number of frequent savers is greatest in the capital area (46%) and smallest in Tampere (30%). The average savings amount is EUR 51-100 per month.
Consumer Prices to Turn Downwards – Finnish Economic Growth to Remain Negative in 2009-2010
The outlook for the Finnish economy 2009 is the worst since the 1990’s recession. Tapiola estimates unemployment to rise to 8.5% this year and to 9.2% in 2010. The production overcapacity and decreased demand have eliminated the inflation pressure. Increased unemployment will decrease private consumption, and since energy and raw material prices sink at the same time, Tapiola expects the consumer prices to turn downwards. In 2009, the inflation is -0.9% on the average.
Tapiola adjusts the forecast on the Finnish economic growth and forecasts that the GNP will decrease by 4% in 2009 (-0.5% in review 2/08). In 2010, the GNP will decrease by 1.1% (0.3%).
– Especially investments will decrease significantly, and we are not expecting a turn before the end of 2010. We expect the export to decrease more than the import and that the net exports will not have a positive effect on the growth of the national economy during the forecast period 2009-2010, Tapiola Group Senior Economist Jari Järvinen says.
Dim Short-Term Outlook for Housing Market
The stagnation has had a remarkable impact on the Finnish housing market. The real estate business slackened significantly at the end of the year, and potential purchasers and apartment changers are extremely cautious, waiting for reduced prices. The reference rates are low but increasing margins and the unstable employment situation decelerate the real estate business in 2009. Free fall is unlike, but the average prices will probably decrease across the board.
– In addition, the development of the housing prices in proportion to the income level has reached its turning point. The differentiation of housing prices and income level development which started in 2005 is now history, and the ”housing prices bubble” envisioned by some parties has burst, Managing Director of Tapiola Real Estate Ltd Vesa Immonen says.
The survey included in the review was carried out by Taloustutkimus in February during weeks 6 to 8. The number of respondents was north of 2,500. The margin of error is +/-2 percentage units. The complete review of business conditions can be found at Tapiola’s website www.tapiola.fi/arjenkatsaus (in Finnish). The reviews of the Finish economy and the housing market are published at www.sijoitustalous.fi (in Finnish).
ADDITIONAL INFORMATION:
Business Review
Marja Pajulahti
Deputy Managing Director
Tapiola Bank Ltd
(09) 453 7106
Finnish Economy
Jari Järvinen
Senior Economist
Tapiola Group
(09) 453 2049
Housing Market
Vesa Immonen
Managing Director
Tapiola Real Estate Ltd
(09) 453 3412
E-mail forename.surname@tapiola.fi
TAPIOLA BANK’S REVIEW OF BUSINESS CONDITIONS 1/2009, OUTLOOK FOR 2009-2010
Forecast on Finnish Economy
- The rapid GNP drop during the final quarter of 2008 pushed the economy to a “starting level” significantly below the starting level of 2008. Tapiola Bank lowers the forecast for the GNP development in Finland to -4.0% in 2009 and -1.1% in 2010.
- The unemployment rate increases after more than a decade of positive development. As many as 100,000 employments will be terminated, especially in the export and construction industry.
- The production overcapacity and decreased demand have eliminated the inflation pressure. The significant reduce of energy and raw material prices affect the annual change figures for consumer prices especially at the end of 2009. Tapiola forecasts that the inflation will decrease on the average to -0.9% in 2009.
- The ECB will lower the interest rate twice and consequently the short-term euribor rates will be record-low; about 1%. In the long run, the present record-low interest rate level will normalize. However, an explosive interest rate increase is not expected.
- The present share prices are still high in proportion to the real economy outlooks and risks.
Housing Market
-During the last quarter of 2008, the housing trade decreased by approximately 40% in comparison with the previous year.
- The increasing margins and the unstable employment situation decelerate the housing market. The market may decelerate further in the future, and the recovery will take longer than earlier expected.
- Housing prices and the income level have reached the same level, and the estimated housing price bubble has burst. In the final quarter of 2008, the price of old apartments decreased by an average of 4% in Finland and by 4.3% in the Helsinki metropolitan area. In Helsinki, the decrease was 3.8%, in Vantaa 5.2% and in Espoo and Kauniainen 6.2%. The lowest price drop of 1.7% was in Jyväskylä.
- During October to December 2008, the price of new apartment and terraced houses increased by 3% in the entire country in comparison with the previous quarter.
- Apartment condition and location are important factors also during recession, and the prices may vary significantly between districts.
- The trap of two apartments should be avoided when prices are decreasing. The price of the present apartment should be determined thoroughly before purchasing a new apartment.
- The rents increased by an average of 3.4% in 2008 in comparison with the year before. The rents of small apartments are still increasing while it is possible that the rents of large apartments will decrease (Rakli Rental Barometer). The conditions for rental apartment production are improving i.a. due to decreased production, lot and financing costs as well as the governmental recovery measures.