The Finnish economy is steaming along reasonably well in spite of what the opposition is telling us.
The Ministry of Finance came up with a new prognosis on the economy this week and the message was in line with what they have been expecting during the second half of this year.
Growth is continuing at around 1% mainly driven by private consumption and the construction sector. Real wages have left more cash in the pocket with consumers and the construction industry has going at full speed.
The indications are that 2020 will see slower growth because of the trade wars and Brexit.
In the major cities there is clearly an overheated labour market even though banks and other large companies have been laying off staff. However activity with SMEs has been on the increase and firms have noted that a tight labour market has been limiting growth opportunities.
In small towns and villages unemployment levels can be high. Moving to places where jobs are available is hard because house prices in the small towns and villages are very much lower compared to prices in the cities.
The government’s target for employment rate is to have it up to 75% by the year 2023. However the Ministry of Finance expects to see an employment rate of just under 74% in 2022. They based their prognosis on present policies and these policies do not take into account any new policies that the present government will be announcing in the first quarter of 2020.
The Ministry of Finance also expects that the government budget deficit will be slightly negative in 2023, but this is also based on present policies and does not take into account any new policies at the present government will also be announcing in the early part of 2020.
Finally it is worth noting that the government is worried about the Financial situation of the municipal sector. Based on data from the municipal sector it is apparent that they are over investing in healthcare premises and that their level of indebtedness is growing too quickly.
The social and healthcare reform of the former government will go ahead during the coming year and this should ensure the removal of social and healthcare activities from the municipal sector to central government. If this is handled carefully by the government quite substantial savings can be made in investments and in the quality of service thus reducing the public deficit by 2023.
The Ministry of Finance issued a warning that the risks of a weaker economy have increased somewhat because of the trade war and Brexit. However they took pains to emphasise that they did not see this as a major risk.
The Director-General of the Budget Department at the Ministry of Finance, Mr. Mikko Spolander, emphasised that an employment rate of 75% would enable the public sector budget to be in balance. This figure when compared to other Nordic countries is not particularly ambitious and the fact that the present employment rate is still at around 73% is probably due to structural problems within the labour market. Basically the long periods of paid maternety leave for women who are raising families means that they are clearly disadvantaged in the labour market. Long maternity leave means that women have great difficulty securing work when they want to return to the labour market. There is also a tendency for employers to employ younger folk – thus making it harder for older people to get jobs they want. Frustrated by the lack of opportunities can mean for some that further job hunting is not on the table.
Past governments have not really come to grips with Finland’s low employment rate. We can only hope that the new government can grab the bull by the horns.