Finland’s central bank raises recovery estimates, says economy to grow 1.6 percent in 2010

Finnish central bank raises recovery expectations

HELSINKI — Finland’s economy will grow 1.6 percent this year, the country’s central bank said Tuesday, revising up a previous forecast for no growth until 2011.

Gross domestic product will expand by 1.8 percent in 2011 and 2.2 percent in 2012, the Bank of Finland said in a three-year forecast.

Bank of Finland Governor Erkki Liikanen cautioned that although the downturn had stopped it would take years for the economy to reach pre-recession growth figures.

“Finland’s real GDP has stopped contracting. GDP growth will, however, be much slower in the immediate years ahead than it was before the financial crisis,” Liikanen said. “Real GDP will not reach the level of 2008 even by the end of the forecast period in 2012.”

The economy has shown negative GDP figures since September 2008 when year-on-year growth was 2.8 percent. Last year the economy contracted by 7.8 percent compared with 2008 — its largest drop since 1918.

The bank cautioned that foreign trade would pick up slowly in the highly export-dependent, small Nordic economy and that unemployment would remain high during the three-year period — at some 9 percent.

After a gradual 10-year decline, unemployment steadily increased during the recession peaking at 10.9 percent in May.

Last month, the unemployment rate jumped to 9.2 percent — up from 7.6 percent in February 2008, the government said earlier Tuesday. The rate among the young, aged 15 to 24, was almost 26 percent — up 6 percentage points from the previous year.

Later Tuesday, the government earmarked about euro80 million ($108 million) to reduce youth unemployment as a major part of its supplementary budget plans for 2011-2014.

In its report, the government estimated economic growth at “about 1 percent” this year and “slightly more than 2 percent” in 2011.

The central bank’s forecast said that strong consumer confidence and low interest rates, however, would help increase consumer demand but private investments would not pick up until 2011.

Finland, with a population of only 5.3 million, has suffered more than many of its European Union partners in the global downturn because of a dependency on exports to larger markets.