Finland enjoys robust growth but unemployment remains high because of inflexible labor market

Here is is the revised outlook from Finland’s Ministry of Finance has just presented a revised economic outlook with positive numbers but with ell-founded warnings that not enough has been achieved.

The recent growth figures for Finland have been surprisingly strong at around 3% and that has taken almost all economists by surprise. However, the Ministry of Finance remains cautious about long-term prospects with their estimate of average future growth being stabilising at around 1.5%.

This year’s and the following 2 years expectations for growth are 2.6%, 2.2% and 1.8% respectively.

They expect growth in EU should continue, with inflation low and monetary policy continuing to be easy. They do not expect to see much increase in interest rates. 

They note higher US inflation with interest rates rising in the coming months.

The ministry noted that Finnish economic growth has seen support from a broader base of exports and domestic consumption. They expect the latter to be more limited in the coming months because of a slow down in real income.

On the negative side the ministry pointed out that unemployment and the hidden unemployed remain too many in number and they see little room for improvement in the coming year. Furthermore the demand for skilled labor remains strong with an unfortunate bottleneck in supply, with too few mechanics, etc being trained, and availability, with too many skilled workers living in the wrong parts of the country. The costs and social challenges of moving are barriers to mobility. 

The Finance Ministry announced that public sector’s financial position is improving and may be in positive territory in 2020 for the first time since 2008. Public sector debt is still increasing because of budget deficits, and there will be many challenges after 2020, which are already clearly evident – expected elevated military and healthcare costs.

Finland’s public financial position has been weakened during the last 10 years by a lack of economic growth and by an ageing population, the there remains a long term problem in balancing the budget of an estimated 2.5% of BKT.

In summary the Director General of the Ministry of Finance, Mikko Spolander, made the following 4 points:

  1. Employment rate has improved.
  2. Growth has been faster, but do not expect this fast growth to be permanent.
  3. Finland is moving towards a slower future growth of around 1% to 1.5%. This comes from increases in productivity and not so much from increases in employment.
  4. Finland urgently needs to get more people to work – this is the key point along with – more housing, training, education, infrastructure, etc…

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