Country Report Finland May 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, with more 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 2.6% 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 5.7% in 2009 and by 1.1% 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 1.1% in both 2009 and 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

• Consistently negative media coverage and a number of mishaps have eaten away at the prime minister's popularity. The latest opinion polls show that his approval rating is at an all-time low. Yet his resignation remains unlikely.
• The two-day visit to Finland in April by the Russian president, Dmitry Medvedev, demonstrates that "Finlandisation" is still very much a part of Finland's relationship with Russia.
• In April the government took part in new tripartite talks with labour unions and employers organisations. The talks represented a return to more normal relations between the social partners following a dispute in March.
• The government has announced plans for a "windfall" tax on electricity producers. The aim is to tax those companies that benefit from the system of carbon dioxide emissions trading, but the plan has attracted criticism.
• First-quarter results from companies in the metals and pulp and paper sectors were extremely weak. Stora Enso, a paper company, announced plans for further job cuts amounting to 2,000 middle-management positions.
• Producer price inflation (national measure) has continued to fall, with the overall index (non-seasonally adjusted) dropping by 6.1% in year-on-year terms in March (and by 1.3% from the preceding month).

Source: Country Report