The Finnish Economy Ain’t Doing Badly

Today your correspondent attended a Ministry of Finance (MoF) press conference on the state of the Finnish economy.

The three economists, (Mikko Spolander, Marja Paavonen and Jukka Railova pictured above),  presented a fair picture of the economy that is not doing too badly, but according to their 4 year forecast, the present policies of the new government are insufficient to achieve their policy objectives of a balanced budget by 2023 and much more needs to be done in the coming months ahead.

According to these economists, economic growth and the employment rate will be too low to support a balanced budget in 2023.

However, if you read the two main national newspapers just after the press conference you would think that the editors had ordered their journalists to write stories for the opposition! Their headlines did not bear much relationship to the content of the press conference!

They screamed, “No money for the welfare state”, and, “The employment rate and economic growth too weak to pay for welfare”…

The new government has just finished its first budget, and they are facing the start of a 4 year period during which there are already several external challenges – the US/China trade war, Brexit,  and weaker economic performance in Germany and Sweden, our 2 biggest markets. At home we have the given fact of an ageing population, as well as slower economic activity and falling productivity.

The three economists make it clear that a whole series of policies which are well known to the government should be put in place if economic activity does not pick up in the coming weeks and months.

These policies would include making sure that the demand and supply of labour meet one another, that the unemployed can be assisted in moving from region to another where jobs are offered, and that the long-term unemployed can find training schemes and other incentives to get them back into the labour market. Furthermore, the government can make investments in infrastructure to stimulate employment for projects that will have a positive long-term impact on growth.

It is notoriously difficult to forecast what will happen in 12 months time, and forecasting for 3 to 4 years is a fool’s game. On the other hand a 3 to 4 year period is too short for planning, implementing and seeing the results of policy actions that should resuscitate the economy.

What we do know however, is that China and Europe do not want to see Donald Trump to be re-elected next year. There is a good chance that the US, China and Europe would then embark on making sure that growth happens with expansive fiscal policies and by opening up the global trade routes once again. Such a policy turnaround would be quite beneficial for Finland by giving a boost to growth and to the rate of employment.

There is not much to be done with regard to Brexit but its impact will probably be fairly limited with or without Brexit.

Finland has an ageing population, and the employment rate as an official statistic does not taking into account the possibility of having pensioners working far longer than the official retirement age. Perhaps the government should be encouraged to get pensioners into the labour market with significant income tax reductions. There is plenty of light work to be done by pensioners, and income tax revenues from this source would be a useful additional revenue for the government given the large size of the pensioners as a group. Having them do some useful work could also have positive health benefits and reduce the burden costs of hospitalisation for the government.

In his closing remarks, Mr. Spolander said that the trade unions are important partners in securing modest wage increases which are in line with our main competitors. He also emphasised that, in addition to modest wage increases, Finland needs to see improved productivity, economic growth and a higher employment rate are all necessary prerequisites to achieve a balance budget in 2023. 

Finland ‘s present economy is not in bad shape, and so long as there is no huge economic downturn, it appears that the Finnish government has a reasonable chance to succeed.

The forecast given by the Ministry of Finance should be seen as a red flag waving clearly in the sunshine telling the government, the trade unions and the employers that they must all do their fair share to enable an improved economic climate.

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