Finland is unlikely to benefit from a cyclical upturn in the economic fortunes of its important trading partners, according to economists interviewed by Yle. The weaker euro has helped Germany boost growth, while cheaper oil has acted as a stimulus in the Eurozone. The US has been growing at a steady clip for some time.
"Of course the situation in Finland will improve a little, but it looks like the cyclical upturn will not be as strong as normal," said Reijo Heiskanen, chief economist at OP Group. "The situation even looks a little weaker than the Eurozone average."
Exports stalling
The problem is that Finnish products and services are simply not doing well enough on the world market. There has been a small increase in sales to Germany and America, but the much more important Swedish and Russian markets remain problematic for Finnish firms because of currency fluctuations.
"The crown has weakened more than the euro and that’s improved Swedish firms’ competitiveness," observed Pasi Holm, who heads up the Pellervo Economic Research think tank. "The rouble has also weakened and Russia’s situation is weak, so Finnish exports to Russia have not developed as well as could have been hoped."
Holm suggests that Finnish firms have lost competitiveness, and are therefore hamstrung in comparison with their peers in other countries.
"Finland has lost market share in export markets," said Holm.
Upturn could be short-lived
OP Group is forecasting one percent of GDP growth for Finland this year. The Finance Ministry’s prediction is even worse, at 0.5 percent.
The government is basing its economic programme and spending plans on the Finance Ministry’s projections, with PM-designate Juha Sipilä targeting at least four billion euros of austerity. The Ministry itself says some 6 billion euros of tax rises or spending cuts need to be implemented.
Outgoing Green Party MP Osmo Soininvaara, whose economic commentary is at the liberal end of the Finnish spectrum, argues that austerity measures are unavoidable, but should not happen right away as they would hit the domestic demand currently keeping Finnish businesses afloat.
He says six billion euros of austerity (equivalent to three percent of GDP) would be a heavy blow to a weak Finnish economy, and that decision-makers should instead prepare austerity measures that can be quickly implemented during an economic recovery. If they were to suddenly cut three percent of GDP when exports remain weak, Soininvaara suggests it could severely damage the economy.
"Unwise to delay" austerity
OP’s Heiskanen gives that argument short shrift.
"It’d be unwise to delay these decisions in the hope that the situation improves, because there’s no guarantee that it will," said Heiskanen. "It could well be that the upturn comes in two years and after that things get difficult again. You can’t count on surprising economic growth."
The figures show some light at the end of the tunnel, despite Heiskanen’s pessimism. Industrial order books were up in March compared to a year earlier in all the main sectors of the economy, and it will be clear by the autumn whether or not there has been a turn towards economic growth.