Labour Institute Forecast: New clouds over Finnish economy

News article

During the first half of 2015 Finnish GNP has remained at the same level as last year. In the second quarter growth was estimated at 0.2 per cent, which is less than the European average.

According to the Labour Institute one the main reasons for such a weak growth is the steep decline in exports to Russia. Growth will come, but it will be slow and in large measure it will be fuelled by the upswing in construction and services.

Next year looks slightly more promising, according to Institute forecasts. ”Finnish GDP will grow this year by 0.4 per cent and next year by 1.2 per cent compared to the previous year. Next year also industry and exports will contribute to economic growth.”

One reason for the expected growth is the general upswing in the European economy that will have a positive effect on Finland, too. The Russian economy continues to be a source of uncertainty as it is an important country for the Finnish economy.

The reasons for the slow recovery of the economy are also to do with the very tense situation in domestic politics due to the government’s interference in labour market negotiations.

A lot depends on the measures the Finnish Government chooses to adopt. ”The government’s plans to restrict freedom of contract and the weakening of collective agreements have already led to a labour dispute, and the situation only threatens to grow worse next year”, the Labour Institute says.

If the present Government goes ahead with its planned legislation this will result in income reductions and lead to increased demands in collective bargaining which are due to begin at the end of 2016. The possibility of strikes cannot be ruled out. ”Production losses might be high. The possibility of social unrest also causes uncertainty, which is reflected in the wider economy.”

The Labour Institute recommends moderate pay rises rather than the radical cuts planned by the Government. This would improve Finland's cost competitiveness relative to competitor countries.

”Analysis of the situation in the Finnish economy supports such a strategy: Finland’s cost competitiveness is nonetheless fairly good, and the negative effects of the shocks will fade and even turn positive within a few years”, the Labour Institute says.

The whole forecast in English (pdf)