The uncertainty on financial markets that had its origins in the USA is at this moment having a considerable negative effect on predicting the course of the world economy. It is impossible to say how long the markets’ suspicion will last and to what extent it may even become worse. For this reason, new statistics publications, predictive indicators and information about the state of the US economy are being followed with greater scrutiny than normal. According to advance information, total output in the USA went up in the first quarter of this year by 2.5 per cent compared with a year ago. At that time the United States was not yet in recession. The growth in private consumption fell, as expected. The most interesting piece of information was that the brakes had been applied not only to investment in residential construction but to other investment as well.

Economic growth slows unavoidably in Europe too

Advance information about the first quarter in Europe is promising. The German economy in particular seems to be in good shape – maybe partly because the beginning of last year was quite poor. Total output in the eurozone went up by 2.2 per cent compared with last year. The indicator of the Euroframe group predicts fairly reasonable growth of 2 per cent for the next quarter as well. Subsequently, slightly lower figures are expected because many indicators point to a slowdown in economic growth and a weakening in economic activity. The European Commission’s Economic Sentiment Indicator (ESI) dropped below its long-term average in both European Union and the eurozone in April. Confidence fell most heavily in the service sectors and retail trade. Confidence also deteriorated in industry and construction but it remained above the long-term average. Consumer belief in the future has also taken a knock in the past few months.

Greatest uncertainty directed at 2009

The Finnish economy kicked off into the new year from good positions. The growth in output has been strong, employment has improved and the public sector financial surplus was at almost record levels. Prospects for the year are very satisfactory. Exports have been brisk up till now and the company order books, which have remained good, will provide work far into this year. Investment will be boosted by the vigorous building of business premises, expansion in industrial capacity, machine and equipment procurements for the new nuclear power plant and state road and rail projects. Private consumption will be supported by a rapid growth in the payroll. Prospects for 2009 are much more uncertain, which can be seen in the greater than normal variation in economic forecasts. Nobody knows when the difficulties with the US economy and turmoil on financial markets will start to ease. Although Finland will benefit from the continued strong economic growth in Asia and Russia, our export demand will deteriorate, unless these problems recede.

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