Forecast summary and risk assesement

A summary of Bank of Finland forecasts for 2005-2007 notes that the world economy is expected to grow an average of 4 percent per annum. Factors that will moderate world growth include the high price of oil, imbalances in the US economy, less support from monetary/fiscal policy in many countries, and the possible "overheating" of the Chinese economy. The impact on inflation of short-term factors like tax changes is discussed. Although the pace of inflation is expected to accelerate about 1 percent in 2005, inflation is expected to remain moderate in 2006 and 2007. Inflation risks associated with price trends and uncertainly surrounding productivity development are assessed. Finland's positive growth outlook will be based on strong domestic demand and an increase in investment, consumption, and imports. Unemployment in Finland will drop to 8.4 percent by 2007, private sector productivity growth should be around 2.5 percent; and central government finances will be stable but export volumes/prices will continue to be weak. The forecast is based on the assumption that household confidence will remain strong.