Erkki Liikanen, Governor of the Bank of Finland, gave a press briefing on 13 June 2017 to discuss monetary policy and the Finnish economy. He noted that euro area growth and inflation forecasts for 2017-2019 remain modest. The ECB will continue its accommodative monetary policy, maintaining low interest rates and continuing asset purchases through 2017 and potentially beyond if needed. While the Finnish economy is embarking on a growth path, its overall condition remains vulnerable, so measures to strengthen competitiveness, employment, productivity, and public finances need to continue.

1. Unrestricted
Bank of Finland
Monetary policy and the
Finnish economy
Press briefing
13 June 2017
Bank of Finland
Erkki Liikanen
13.6.2017 1

2. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Monetary policy accommodative
2Erkki Liikanen13.6.2017

3. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Euro area growth and price outlook
Eurosystem staff macroeconomic projections from
last week
GDP
 2017: 1.9%
 2018: 1.8%
 2019: 1.7%
Inflation
 2017: 1.5%
 2018: 1.3%
 2019: 1.6%
13.6.2017 Erkki Liikanen 3

4. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
ECB General Council in Tallinn on 8 June:
Accommodative monetary policy to be
continued
 Net asset purchases are intended to run until the end of 2017, as
previously announced, at a monthly pace of EUR 60 billion.
– Net purchase may be made even beyond the above deadline, if
necessary, until a sustained adjustment is seen in the path of
inflation consistent with the price stability objective.
– Reinvestments of interest and principal payments from maturing
securities will continue even after termination of the net
purchases.
– If the outlook becomes less favourable, or if financial conditions
become inconsistent with further progress towards a sustained
adjustment in the path of inflation, the ECB Council stands ready
to increase the asset purchase programme in terms of size
and/or duration.
 Forward guidance regarding interest rates
– The ECB Council expects the key ECB interest rates to remain at
their present levels for an extended period of time, and well past
the horizon of the net asset purchases.
4Erkki Liikanen13.6.2017

5. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Purchases under the expanded asset purchase
programme, in cumulative terms
5Erkki Liikanen13.6.2017
0
500
1000
1500
2000
2500
2015 2016 2017 2018
Asset-backed securities Covered bonds
Public sector debt securities Corporate sector debt
EAPP asset purchases, EUR billion
Sources: ECB and Macrobond. 32422@EAPP (eng)
The dash-dotted line shows target path announced in December 2016, the dashed line shows target path announced
in March 2016, and the dotted line shows the initial target path announced in December 2015.

6. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Conditions for achieving a sustained
adjustment in the path of inflation consistent
with the price stability objective
 Price stability has been defined and its achievement is
reviewed over the medium term.
 There must be a sustained convergence of inflation
towards the objective; a temporary increase in prices
will be insufficient.
 Price stability needs to be achieved in such a way that it
is self-sustaining, i.e. price developments must be
consistent with the objective also in a situation where
the current very accommodative stance of monetary
policy is withdrawn.
 Price stability objective refers to euro area average
inflation
6Erkki Liikanen13.6.2017

7. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Monetary policy rates and short-term
market interest rates
13.6.2017 Erkki Liikanen 7
-1
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017
3-month Euribor
12-month Euribor
Interest rate on main refinancing operations (MROs)
Interest rate on the deposit facility
Interest rate on the marginal lending facility
%
Sources: ECB and Macrobond.
patu32422@ohjauskorot

8. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
The Finnish economy is embarking on a
growth path, but its overall condition is still
vulnerable.
8Erkki Liikanen13.6.2017

9. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Outlook brighter than before
 After several years of weak performance, growth
is now forecast to continue.
 Activity is more balanced than before, with
exports also growing.
 Exports are bolstered by both the external
environment and improvements in cost-
competitiveness.
9Erkki Liikanen13.6.2017

10. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Cost-competitiveness projected to improve
Improvements in 2017‒2018
 Competitiveness Pact
 In 2018, labour costs are
assumed to increase at a
slower rate than for
trading partners
 Revival of productivity
growth in Finland
Bank of Finland’s
forecast, June 2017
10Erkki Liikanen13.6.2017
100
105
110
115
120
125
130
135
2005 2007 2009 2011 2013 2015 2017
Finland Euro area 12** Trading partners***
Index, 2005 = 100
*) Labour compensation relative to real national income.
**) First 12 euro area member states. ***) 14 traditional industrial countries.
Forecasts: Bank of Finland (Finland) and European Commission (other
countries).
Unit labour costs adjusted for changes in terms of
trade*
Sources: Statistics Finland, Bank of Finland and European Commission.
34093

11. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Labour productivity to increase relative
to labour costs in 2017
Labour
compensation
(incl. employer
social security
contributions)
Labour
productivity
Per employee,
Annual change, %
2016 1.1 1.0
2017f -0.3 1.5
2018f 1.1 1.0
2019f 1.4 1.0
11Erkki Liikanen13.6.2017

12. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Finnish export growth has been
historically weak
12Erkki Liikanen13.6.2017
70
80
90
100
110
120
130
140
150
2008 2010 2012 2014 2016 2018
Finland Euro area*
Volume index, 2008 = 100
*) Includes intra-euro area trade.
Forecasts: Bank of Finland (Finland) and Eurosystem (euro area).
Sources: Bank of Finland and European Central Bank. 34236
Exports of goods and services

13. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Exceptional decline also in
manufacturing employment
13Erkki Liikanen13.6.2017
75
80
85
90
95
100
105
2008 2010 2012 2014 2016
Finland Euro area
Index, 2008 = 100, four-quarter moving average
Sources: Statistics Finland and Eurostat.
Number of employed in manufacturing
34237

14. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Costs have risen in those industries in Finland from
which export sectors buy domestic inputs
14Erkki Liikanen13.6.2017
90
100
110
120
130
140
150
1999 2001 2003 2005 2007 2009 2011 2013 2015
Finland Average of trading partners in euros
Index, 1999 = 100
*) Industries other than manufacturing, weighted by their shares in the intermediate
consumption of Finnish manufacturing. The figures exclude the financial sector, public
administration, as well as education and health services, for which measurement of
productivity is uncertain.
Sources: Eurostat, OECD, US BEA and calculations by the Bank of Finland. 34112
Unit labour costs in sectors producing intermediate goods for
manufacturing*

15. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
General government deficit persists
15Erkki Liikanen13.6.2017
-4
-3
-2
-1
0
1
2
3
4
5
6
2005 2010 2015
% of GDP
Sources: Statistics Finland and Bank of Finland.
General government net lending
34238

16. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Sustainable attainment of high growth
rates of previous decades not expected
 Two significant underlying factors:
– Demographic developments, ageing
– There has been a trend decline in labour
productivity growth.
 Therefore, without new measures, public revenue
will not be sufficient for financing public
expenditure in the long term.
16Erkki Liikanen13.6.2017

17. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Measures to strengthen the economy
have been important
 Since 2008, the economy has faced several
negative shocks
 Decisions to strengthen the outlook have been
important
– Pension reform
– Competitiveness Pact
– Measures to strengthen the public finances
 Despite resumption of growth, the economy
remains vulnerable
17Erkki Liikanen13.6.2017

18. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Measures to strengthen the economy
need to be continued
Four key areas:
 A turnaround has been achieved in the development of
unit labour costs. It is of primary importance that there is
no slippage and that the losses to date are recouped.
 It is important to raise the employment rate, particularly to
reduce youth unemployment.
 Productivity growth is a precondition for higher standards
of living. To boost this, we need education, investment,
reorganisation of labour, initiative, competition.
 We need to consolidate the public finances and to
strengthen their long-term sustainability, also from the
perspective of fairness between the generations.
13.6.2017 Erkki Liikanen 18

19. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Articles
 Estimation of structural unemployment important, but
complicated
– Meri Obstbaum and Mikko Sariola
 Finland struggling to defend its market shares on
rapidly expanding markets
– Petri Mäki-Fränti and Seppo Orjasniemi (Economic Policy Council)
 How can we measure the economy in the digital era?
– Juha Itkonen
 Success of companies reflected in wages and
employment
– Juuso Vanhala, Matti Viren and Satu Nurmi (Statistics Finland)
19Erkki Liikanen13.6.2017

20. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Juha Itkonen: How can we measure the
economy in the digital era?
www.eurojatalous.fi
 Digitalisation generates economic well-being and
new business.
 The market entry of new products always poses a
challenge for the measurement of changes in GDP
volume.
 Rather than a measure of well-being, GDP is a
measure of market output.
 GDP is a useful indicator of developments in the
funding base of the public finances.
– It is not affected by, for example, digital services provided free
of charge.
20Erkki Liikanen13.6.2017

21. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Thank you!
21Erkki Liikanen13.6.2017