Return to slow growth

OP-Pohjola's economists predict that the world economy will grow in 2013 at about the same rate as in 2012. In 2014, the world economy will increase to an average rate of growth. 2013 began in most developed countries modestly, but should pick up speed gradually. Of the major economies, the US will have slow growth in early 2013 as higher taxation is eating away at purchase power. At any rate, the US economy will grow by about two per cent in 2013, too. The euro area economy will on the whole begin to recover again this year, but on average euro economies will not increase. A proper increase is not to be expected until after 2014. These forecasts are based on the assumption that the euro area sovereign debt crisis will remain relatively stable. However, it is likely that uncertainty will increase occasionally, and the ECB may have to keep its promise on buying government bonds. Short-term euribor rates will remain at about their current level both in 2013 and 2014. The European Central Bank's main refinancing rate will remain between 0.50 and 0.75 per cent. OP-Pohjola's economists estimate that the US Fed will increase its rates already in late 2014, which will cause long-term interest rates in the euro area to increase, too. The euro will remain quite strong well into 2014, but as the Fed will tighten its monetary policy, the euro will decrease in value. The first part of 2013 will feature the familiar risks, such as the US fiscal cliff and the euro area sovereign debt crisis.  The markets may test the ECB's promise on unlimited but conditional purchases of government bonds. According to OP-Pohjola's economists, 2013 will be a kind of transition year. The economies of industrialised countries will not recover properly, nor will they go down either. 2014 will see an improvement, but on the other hand, the risks will also be higher than in 2013. OP-Pohjola's Chief Economist Reijo Heiskanen estimates that the acid test for the euro area will be 2014-15 when the crisis countries will have to live up to the expectations of making a recovery. This period coincides in the USA with a shift from an exceptional monetary policy back to what is more normal, which is also a risky juncture. Finnish economic growth to slow down by 0.8% in 2013 OP-Pohjola's economists estimate that the Finnish economy will take a turn for the better already in the early months of 2013 following a small dip. GDP will increase this year by 0.8% and in 2014 by 1.7%. In the autumn of 2012, economists made a forecast that Finland's GDP will increase by 1.4% in 2013. "One cannot really talk of an actual recovery yet,  it is more of a case of returning to a slow growth path. Growth will recover more clearly in 2014, but it will not be until 2015 that the conditions are right for a proper upswing," says Mr Heiskanen. A gradual increase in economic growth hinges on exports. Private consumption is increasing slowly, and capital investment will shrink still in 2013. The increase in real income will be about one per cent both in 2013 and 2014. The forecast is based on an assumption of a very moderate pay deal. In 2014, the increase in income will slow down to about one per cent, which is the lowest figure for five decades apart from 1993. Inflation, too, will slow down sharply, so the decrease in real income will be small. OP-Pohjola's economists expect inflation to be 2.2% in 2013 and 1.3% in 2014. Unemployment will rise steeply in the spring momentarily, but the annual average of employment in 2013 will remain at 8.1%. Both the current account deficit and fiscal deficit will fall somewhat. "Market fluctuations have not disappeared anywhere. The market will be poor this year and at best moderate in 2014. But this time there is light at the end of the tunnel, and a proper upswing is expected. But that is still a long way from now, and the Finnish economy's long-term growth prospects have reduced markedly as a result of the financial crisis. The Finnish economy is unlikely to reach previous growth figures in the long term," says Reijo Heiskanen. For more information, please contact: Reijo Heiskanen, Chief Economist, tel. +358 10 252 8354 Chief Economist Reijo Heiskanen and Economist Maarit Lindström will talk about the financial outlook on the 'OP-Pohjola Group Nyt' webcast on 21 January 2013 at about 2 pm on > OP-Pohjola-ryhmä > Uutishuone. OP-Pohjola Group OP-Pohjola Group is Finland's leading financial services group providing a unique range of banking, investment and insurance services. The Group's mission is to promote the sustainable prosperity, well-being and security of its owner- members, customers and operating regions through its local presence. Its objective is to offer the best and most versatile package of loyal customer benefits on the market. OP-Pohjola Group consists of some 200 member cooperative banks and the Group's central institution, OP-Pohjola Group Central Cooperative, with its subsidiaries and closely-related companies, the largest of which is the listed company Pohjola Bank plc. This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Pohjola Pankki Oyj via Thomson Reuters ONE [HUG#1671545]