Roundup: Finnish economy climbs out of quagmire, shows signs of slow recovery

After three consecutive years of negative growth, the Finnish economy has finally started to show some signs of recovery, but the growth is expected to remain slow in the coming years.

The Finnish Finance Ministry said in the Economic Survey-Spring 2016 published on Thursday that the Finnish economy has returned to slow growth.

In 2015, its GDP rose by 0.5 percent, which is better than the ministry's previous outlook made in last December. The ministry said that the slight growth was driven mainly by exports and consumption.

The ministry projected that the GDP will grow by 0.9 percent in 2016. The growth for 2017 and 2018 will be 1.2 percent.

Despite the signs of resuscitation, the growth is expected to remain quite fragile. In 2018, the country' GDP will still be about 2 percent lower than in 2008, and the industrial production will be 20 percent lower than 10 years ago.

Shortly before the Economic survey was published, Mika Kuismanen, head of the Economic Unit of the Finance Ministry, told the Finnish national broadcaster Yle that Finland has not kept the pace with the growth in the rest of the euro zone.

DEEP RECESSION

The Finnish economy has been mired in a prolonged recession since the global financial crisis in 2008.

An export-oriented economy, Finland is quite vulnerable to turbulence in the international financial markets.

Hard hit by the financial crisis, Finland's GDP dropped by 8.6 percent from 198 billion euros (about 224 billion U.S. dollars) in 2008 to 181 billion in 2009, according to Statistics Finland.

Meanwhile, the unemployment rate has surged from 6.4 percent in 2008 to 9.4 percent in February this year.

Following the financial crisis, the economy has suffered from the euro crisis, the West's sanctions on Russia and Putin's countermeasures against the EU. Analysts said Finland found no any breathing space to revive its economic performance during 2009-2014.

At the end of 2015, the debt-to-GDP ratio rose to 63.1 percent. As a result, Standard & Poor's and Fitch recently lowered the credit ratings for the recession hit country to AA plus from the best triple A.

The Finnish government led by Juha Sipila insists that one of the major reasons of the deep recession lies in a lack of competitiveness in the global market.

Some economic specialists, nevertheless, attribute the difficult situation to more factors, such as the global economic slowdown, the population aging, the downfall of Nokia, the difficulties in the forest and metal industries.

INTERNAL DEVALUATION

During the previous parliamentary term from June 2011 to May 2015, the left-right coalition planned a series of structural reforms including spending cuts and measures to boost economic growth, employment and competitiveness. The reforms failed to be implemented.

The current center-right government, which took office last May, promised to carry out the reform as soon as possible to bring the country's economy to the right path.

In March, the government made the labor market organizations to agree on the social contract, which aims to reduce production costs and improve the competitiveness of the Finnish exporters.

The agreement, part of an ambitious plan dubbed "internal devaluation", was described by Sipila as "historical."

At the beginning of this month, the government published its fiscal plan for 2017 to 2020, which calls for 400 million euros cuts to meet its previously announced savings target of 4 billion euros. The target is expected to halt the growth of general government gross debt to GDP by the end of 2019.

However, in its latest Economic Survey of Finland, the Organization for Economic Cooperation and Development (OECD) criticized the government's austerity measures, saying that cuts in public spending will hold back domestic demand. OECD said that savings in research and education do not help boost entrepreneurship and innovation.

The austerity policy has also met criticism domestically. Finns have held several demonstrations to protest against the cost cuts since last year.

VARIOUS SUGGESTIONS

The Finnish Finance Ministry pointed out that the growth outlook for the period of 20162018 will remain slow due to the sluggish exports, which dragged down by the modest outlook of the global economy and trade, particularly the economy in Russia, one of the major trade partners of Finland.

Erkki Liikanen, the Governor of the Bank of Finland, told media earlier that he believes structural reforms and measures to improve the competitiveness of businesses are keys to get the economy back to track.

Matti Tuomala, adjunct professor of economics at the University of Tampere, suggested that Finland should strive to ensure the amount of household disposable income does not contract any further in order to sustain domestic demand.

According to information obtained by Yle in February, the European commission suggested that there should be enough regular consumers and infrastructure investments to fuel growth. (1 euro = 1.13 U.S. dollars) Endit