Description of the operational environment

Global economic outlook

Uncertainty over the development of global economic growth increased during the first half of 2019 and the economic outlook worsened. The trade policy tension between the United States and China became a central theme. In addition, the United Kingdom leaving the European Union caused a domestic policy crisis as a result of which the exit had to be postponed. This in part had a negative impact on industry and consumer confidence in Europe. Uncertainty over the global trade outlook impaired the outlook for industry, and global economic growth is expected to slow down to the level of 3.2 per cent during 2019. Central banks’ monetary policy is changing to a stimulating direction, which in part reduces the negative shock arising from global obstacles to trade.

Economic growth in the euro zone was modest, and the change was 1.2 per cent during the first quarter year-on-year. The development of the labour market has continued to be good in the euro zone, and the unemployment rate has decreased. Trade policy tensions and uncertainty over economic growth have manifested themselves as decreasing confidence indicators. In particular, industrial confidence indicators decreased during the first half of 2019. The increase in core inflation ground to a halt during the second half of last year, and expectations regarding the ECB’s monetary policy changed to a significant extent. The European Central Bank estimates that key interest rates will remain at their current level until at least mid-2020.

Economic growth in the United States has remained stable, and the change was 3.1 per cent during the first quarter year-on-year. The unemployment rate is exceptionally low, even though fewer new jobs were created than the previous year. Uncertainty regarding trade policy and the administration’s planned changes in import duties could be seen in the slowing down of industrial production. Industrial confidence indicators decreased strongly during the first half of 2019. In spite of the impairment of industrial outlook, consumer confidence continued to be strong and retail sales grew during the first quarter. Expectations regarding the monetary policy of the US Federal Reserve changed significantly after the turn of the year. The increase in the key interest rate stopped after a three-year rise, and the market began to price interest rate cuts. Underlying the change is the low consumer price inflation and uncertainty over the potential impacts of a trade war on economic growth. Inflation expectations turned to a decline during the fourth quarter of 2018 and have continued to decrease during 2019.

The Finnish economy

The outlook of the Finnish economy has worsened as global economic growth has slowed down. In particular, the outlook of exports has worsened. Adjusted for seasonal fluctuations, the Finnish GDP increased by 1.2 per cent year-on-year during the first quarter and is therefore close to the economic growth in the rest of the euro zone. A slowing down of economic growth in the euro zone will have a significant impact on the Finnish economy, as 40 per cent of the value of exports of goods is bound for other euro zone countries. Even though the Confederation of Finnish Industries’ confidence indicator decreased strongly last year, growth in industrial production has remained at a good level. The employment rate has improved and households’ purchasing power has developed favourably. These factors support economic growth, which depends on domestic consumption as export demand slows down. An increase in the employment rate from its current level requires faster economic growth, which is challenging in the prevailing situation of the world economy. Finland’s economic growth is expected to be around 1.5 per cent this year.