Annual Report 2014


Uncertainty plagues the economic operating environment

Record-strong solvency will be Varma’s trump card in the volatile capital markets also in 2015. The 2017 pension reform, which will lengthen careers and strengthen statutory pension provision in the coming decades, will also help to close the sustainability gap in the Finnish economy.

Finland is in an economic slump, and the economic growth in 2014 is expected to have remained at the previous year’s level. In 2015, the economy is expected to pick up slightly. The fall in the price of oil promotes growth in Finland’s important export markets. If successful, the ECB’s bold monetary policy measures will promote economic recovery and price stability in the eurozone, but their final impact on the economy remains partly uncertain. The downward spiral of Russia’s economy casts a shadow on Finland’s outlook.

Industrial output has been decreasing nearly nonstop for the past three years. Declining industrial investments combined with the weakening supply of workforce and modest productivity development undermine the economy’s growth potential also in the longer term. Nearly all sectors of business and industry are affected by the problems. The unemployment rate increased, and the employment situation is expected to worsen at least during the early months of 2015.

Improving the price competitiveness of Finland’s exports requires that wages increases remain modest. The possibilities to promote domestic demand and increase purchasing power by relaxing taxation are limited. Finland is struggling with growing debt, a sizable sustainability gap, and dwindling growth. The balancing act between these will continue for years to come.

Monetary policy in focus

We can expect to see volatility in the capital markets also during the economic year 2015. The rise in share prices has continued for a long time, bolstered by monetary policy. The equity markets and the real economy seem to have partly diverged in Finland and elsewhere in Europe. During the year, interest rates continued to fall from the already low level of the early year, which boosted interest income.

We can expect to see volatility in the capital markets also during the economic year 2015.

Varma’s priority has been on fostering strong solvency, active diversification of investment assets and a careful approach to risk management. Competent risk management ensures the profitable and secure investment of pension assets, especially at times when uncertainty causes volatility in the markets. 

Towards the end of 2014 the markets grew increasingly restless. The central banks’ measures are at different phases of the cycle. In the beginning of 2015, the European Central Bank launched new monetary policy measures aimed at supporting the eurozone economy and speeding up inflation, while the U.S. central bank, the Fed, is normalising its monetary policy as the economy recovers. The central banks’ success in monetary policy will be critical in order to ensure economic growth and the stable development of the capital markets.

The U.S. remains the centre of the global economy

In 2014, the global economy was driven by the U.S., where growth forecasts are stable and the labour markets are strengthening. The fall in the price of oil is promoting growth in the U.S, and the problems in the Russian economy are not reflected in the country’s economy in the same way as in Europe. 

The eurozone has still not recovered. Growth is not taking off, inflationary pressure is low and unemployment rates remain high in several member states. Eurozone exports remained stagnant and overall demand was weak, as the structural reforms and austerity measures called for by public finances continue to depress the domestic markets. Many crisis-stricken countries have nevertheless managed to improve their economies.

Global investment demand remains feeble, and growth in global trade volumes is slow. China and other emerging economies are developing moderately compared to the rate we have been accustomed to in recent years. The investment cycle is picking up, which is expected to increase economic activity. However, the escalating geopolitical risks are increasing economic uncertainty.

Russian economy plummeting

The price of oil fell rapidly in the last quarter of the year. This supports economic development, but at the moment it is having detrimental effects on the Russian economy and exports to Russia, which also has a negative impact on Finland and the rest of Europe.

The Russian economy, which relies on raw material exports, is also being strangled by Western sanctions.

Varma prepares for pension reform

The 2017 pension reform will better adjust Finland’s pension system to the longer life expectancy. Tripartite preparation of legislation is ongoing in the Ministry of Social Affairs and Health on the basis of the pension reform agreement. The new pension acts will be passed by the parliament to be elected in April 2015.

Read more about the pension reform in the section Pension reform 2017.

The pension reform will have an impact on all of Varma’s client companies and insured customers. Implementing the pension reform will be an important task for Varma in the coming years. As a strong expert in workability management and vocational rehabilitation, Varma will support its client companies and the insured in extending careers. The goal of extending careers does not always necessarily coincide at workplaces and in people’s lives when the economy is suffering. However, the pension reform aims to achieve changes in the long term.