Country Report Finland April 2009

Outlook for 2009-10

• Despite disagreement between the parties beginning to show, the Economist Intelligence Unit believes that the four-party coalition will hold together over the next two years.
• The government is using spending increases and tax cuts in its 2009 budget, and more are likely in 2010 in the hope of stimulating the economy and boosting employment.
• Increased spending, tax cuts and weaker revenue growth will see the general government budget fall into deficit, at 2.3% of GDP in 2009 and 3.8% in 2010, after an estimated surplus of 4.2% of GDP in 2008.
• Given its open and export-oriented economy, the global economic downturn will have a serious impact on Finland: real GDP growth is forecast to fall by 5.1% in 2009 and by 1.3% in 2010, following growth of only 0.9% in 2008.
• Inflation, which was high during most of 2008 and averaged 3.9% (EU harmonised measure) for the year, is forecast to fall to an average of 1.2% in 2009 and 1.5% in 2010.
• As a proportion of GDP, the current-account surplus is likely to continue its decline in 2009-10, but will remain just positive.

Monthly review

• The rift is widening between the two main coalition parties, the Centre Party (KESK) and the Conservatives (KOK).
• According to recent polls, the rightist nationalist anti-immigrant party, True Finns, has continued to gain in popularity since its success in the October 2008 municipal elections.
• The government has announced increases in taxes on electricity, fuel, oil and alcoholic beverages that are designed to offset the revenue losses resulting from the removal of employers social insurance contributions.
• Following public outrage at large management payoutswith criticism focused on a power company, Fortumthe government has announced plans to examine pay at companies in which the state holds a stake.
• The precipitous decline in industrial activity seen in late 2008 has continued into 2009. Industrial output adjusted for working days is 19.5% lower than 12months earlier, with a 35% drop in output in the forest industry.
• So far, none of the countrys banks has required the assistance of the safety nets put in place by the government. This is partly because the money markets are still functioning in a relatively effective manner.