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Nordea: Growth will slow next year, wage rises must remain modest

Nordea Bank says that Finland's economic upswing will begin to taper off in 2018 – and that growth depends on keeping salaries modest and pushing ahead with economic reforms.

Nordean konttori Helsingissä
A Nordea office in central Helsinki. Image: Henrietta Hassinen / Yle

One of Finland's biggest financial groups, Nordea, is calling for moderation in wage rises during this autumn's round of labour negotiations, saying that is essential to improve the nation's competitiveness and shore up the fragile recovery.

Nordea's chief economist Aki Kangasharju specified on Wednesday that wage increases should be kept under 0.7 percent and that overall level of earnings should rise by no more than one percent.

"This would succeed in ensuring wage-earners' purchasing power and continuing to improve competitiveness," Kangasharju predicts.

Nordea argues that keeping wages moderate and boosting competitiveness are essential even during a period of economic growth, so that Finland will be able to better ride out the next inevitable decline in exports.

In a statement, the Nordic bank declares that "the Finnish economy is now on a firmer footing as both foreign trade and domestic demand contribute to growth. Export demand has picked up following the new momentum in world trade, and, going forward, employment should improve and support private consumption while business investment continues to increase rapidly."

Cautious, uncertain forecast for 2018-19

Nordea has decided to stick with its previous economic forecast, which predicts that the Finnish economy will grow by three percent this year, slowing to two percent next year and just 1.5 percent in 2019.

But it warns that the prognosis for 2018-19 may have to be downgraded if wages "are raised excessively" and if structural reforms to the Finnish economy become bogged down ahead of the spring 2019 parliamentary elections.

The financial group's economic mavens express surprise with the growth in consumption by Finnish households.

"The growth in consumption has clearly outpaced that of incomes, so savings have declined. Consumption cannot remain this strong for long as there is no room for large wage hikes," observes Nordea economist Pasi Sorjonen.

Nordea Finland is part of the pan-Nordic banking group, which is expected to announce later on Wednesday whether it will move its headquarters from Stockholm – possibly to Helsinki.

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