Macro Focus - May 2016
Finland: climbing up along a flat surface
  • Finland’s GDP growth is expected to recover in 2016-2017. 
  • Worsening situation on the labour market increases burden on public finances and reduces potential output growth. 
  • Government’s austerity programme restrains economic growth in the short term, but, together with the adopted reform package, if implemented, should have positive results in the longer term. 

Economic growth depends on exports 

Last year, Finland left behind a long period of economic recession that lasted three years. We expect that its GDP growth continues to recover at a relatively modest pace. An expected improvement of exports and investments will contribute to the growth, while the growth of private consumption is expected to slow. The construction and services’ sectors are expected to be the main growth drivers on the production side of the economy this year. 

Labour market needs reforms for improving competitiveness 

The rapidly ageing and shrinking working-age population, elevated unemployment, and relatively low employment rate are not only worsening the situation on the Finnish labour market, but also increasing the burden on public finances; this is reducing potential output. During the last couple of years, Finland has made progress in narrowing the gap between wage and productivity growth, which has contributed to the improvement of its cost competitiveness. However, in the longer run, Finland’s cost competitiveness has deteriorated. 

Government’s dilemma: less spending or more growth 

The Finnish government has set off an austerity programme that can restrain economic growth in the short term, but - together with the adopted reform package (pension reform, health care reform, labour market reform, productivity-enhancing reforms, green growth, and tax reform) - can have positive results in the longer term. Failure to implement these reforms, however, could leave Finland in a low-productivity and low-competitiveness trap and, in turn, hinder the recovery of Finland’s economic restructuring and growth.

PDF Finland: climbing up along a flat surface

 For more information please contact Tõnu Mertsina, +372 888 7589, tonu.mertsina@swedbank.ee

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