Country Report Finland March 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 will co-operate more closely with NATO and remain committed to the EU, despite some increase in Euroscepticism.
• The government will use spending increases and tax cuts as in the 2009 budget, together with extra economic stimulus measures, in the hope of stimulating the economy and boosting employment.
• 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 4.7% in 2009 and by 0.3% in 2010, following growth of only 0.9% in 2008.
• Inflation, which rose sharply throughout 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.
• Increased spending to stimulate the economy and weaker revenue growth will see the general government budget fall into deficit, at 2.3% of GDP in 2009 and 3.1% in 2010, after an estimated surplus of 4.1% of GDP in 2008.
• As a proportion of GDP, the current-account surplus is likely to continue its decline in 2009-10, but will remain positive.

Monthly review

• The government's credibility has been damaged following its proposal (and subsequent backtracking) on seeking a rise in the minimum retirement age without taking part in tripartite talks with unions and employers beforehand.
• In early March parliament adopted a controversial new law, dubbed Lex Nokia, which will give employers the right to monitor employees' e-mails when wrongdoing is suspected.
• The government, labour organisations and employers reached agreement to find means (other than raising the minimum retirement age) to raise the average length of labour market participation by three years by 2025.
• Despite the steep downturn in economic activity in the second half of 2008, the public finances remained relatively healthy for the year as a whole.
• National accounts figures confirmed that Finland entered a technical recession in the second half of 2008. GDP fell by 1.3% in the final quarter compared with the preceding quarter, after a 0.3% drop in the third quarter.
• Imports and exports continued to fall dramatically in January. Exports of goods fell by 35.8% year on year while imports fell by 34%.