Country Report Finland June 2009

Outlook for 2009-10

• Despite disagreement between the parties intensifying, 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, in the hope of stimulating the economy and boosting employment. Further tax cuts are to be implemented in 2010.
• Increased spending, tax cuts and weaker revenue growth will see the general government budget fall into deficit, at 2.6% of GDP in 2009 and 4.1% 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 5.6% in 2009 and by 0.1% in 2010, following growth of only 0.7% 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 1.1% in both 2009 and 2010.
• As a proportion of GDP, the current-account surplus is likely to decline in 2009 and remain low in 2010.

Monthly review

• In the June 7th European Parliament elections, both main governing coalition partners suffered a loss in support and one seat in comparison with the last European election in 2004.
• The main beneficiary of the election was the rightist nationalist anti-immigrant party, True Finns, led by the charismatic Timo Soini. The party's share of the total vote rose from 0.5% in 2004 to 9.8% in 2009.
• In June parliament voted unanimously to implement another increase in the alcohol tax with effect from October 2009. The new tax will boost the price of beer and wine by 3% and the price of spirits by 7%.
• A cabinet committee has decided that the Finnish state will take a majority stake in the national electricity grid operator, Fingrid, because of a new piece of EU legislation that bans utilities from owning transmission infrastructure.
• The rate of decline of GDP accelerated sharply in the first three months of the year. Total output fell by 2.7% compared with the preceding quarter and by 6% in comparison with the same quarter of 2008 (seasonally adjusted).
• Much of the weakness in first-quarter GDP was accounted for by the substantial fall in manufacturing output, which contracted by 19.8% compared with a year earlier and by 7.9% compared with the preceding quarter.

This report covers the following industry codes:
SIC Code: 49;39
NAICS Code: 22;31