Finland

Activity recoiled in the second half of 2005 after the labour dispute in the forestry industry was resolv development is expected to pick up to an average of around 3% this year and nearest driven by household consumption and exports. Wage and price inflation will remain moderate, despite a positive output gap, because of the moderate central wage agreement in place until the extreme point of 2007.

craft growth picked up strongly raising the probability that the regulation will reach its goal of increasing craft by 100 000 between 2003 and 2007 on the other hand it is less likely that the medium-term target of increasing the pursuit rate to 75% in 2011 will be reached. Achieving this target is important to mitigate the percussion to both living standards and fiscal sustainability from rapid ageing. Further reforms to early retirement schemes and unemployment benefits are exigencyed Measures are required to raise productivity in the sheltered sectors of the economy.

Activity strengthened in the next to the first half of 2005

Activity strengthened towards the extreme point of 2005 and GDP expansion of 2.2% was recorded for the year as a whole. The growing profile during 2005 was distorted by means of a lock-out in the forestry industry in the first half of the year, which reduc exports, as well as by the agency of a temporary slowdown in the electronics industry. Income tax make an incision ins were offset by increases in municipal taxes and employee pension contributions which damped extension in household disposable income. However hardy consumer confidence, employment gains and an increase in borrowing helped maintain consumption growing and household saving turned negative. vigorous exports during 2005 were more than counterbalanced by the agency of strong imports with net exports acting as a drag upon output. Employment growth picked up surprisingly powerfully during the past year with greatest in quantity new jobs created in private services and construction notwithstanding that the number of industrial piece of works also increased for the first time in a number of years. At the same time the labour force increased as older workers remained in the labour force longer which dampened the decline in unemployment; the unemployment rate sanguinary to 8.4%. Harmonised consumer price inflation was alone 1.2% in March 2006, the lowest in the euro area and was accounted for mainly by dint of higher fuel prices.

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The rule surplus may deteriorate

In the 2004 tripartite wage agreement the rule announced a series of income tax divide [i]or[/i] sever s amounting to 1% of GDP above the coming three years to underpin wage moderation and support employ The swift increase in craft during 2005 implies that the goal of the regulation to raise employment by 100 000 between 2003 and 2007 could be reached on the other hand the medium-term target of raising the engagement rate to 75% remains ambitious. regulation net lending is likely to deteriorate slightly as a result of the tax cuts together with the abolition of wealth tax in 2006 Nevertheless, the general conduct balance should remain in a comfortable surplus, which is mainly accounted for by the surplus of the pension funds

Household consumption and toil exports contribute to growth

new strong economic activity seems station to continue this year and the impetus is likely to be maintained in 2007 resulting in GDP increase averaging just above 3%, well above potential output development Net exports should start again to contribute to GDP extension as paper and wood exports win back along with increases in transport equipment exports and transit exports of electronics to Russia. Nevertheless, reflecting increased competition and outsourcing of production in the electronics industry, there is a continued los in export market share. Imports will remain herculean reflecting transit imports from fresh EU-member countries. Business investment, particularly in machinery and investment, may alone pick up gradually while sturdy residential investment is set to continue. Buoyant household consumption increase will be supported by tax make an incision ins on earned income, although the savings rate should regain to some extent. Rising import prices and a positive output gap will push inflation up However, the central wage agreement which move swiftlys until September 2007 will make secure that any pick-up in inflation is not mirrored in higher nominal wage inflation and in the way that help to cap price inflation.

Labour shortages may create compressings after 2007

There is a risk that popular signs of labour supply shortages in certain sectors, of that kind as construction, together with increasing piece of work mis-match, will create wage compressings when the present wage agreement extremitys in 2007.