Finland: Double-Dip Recession or Depression?
CEIC Macro Watch Global #34 - July 30, 2014: Finland’s economy experienced a sharp recession after the financial crisis. However, the second contraction, which started in the second quarter of 2012, has not been as acute as the first one in spite of resulting in a period of prolonged recession. In 2009, when the Nordic country was harshly hit by the global financial crisis, the economy contracted by 8.3% in real terms. In 2010 and 2011, real gross domestic product (GDP) increased by 3.0% and 2.6%, respectively. However, economic output has contracted since then, in line with the challenging economic environment in the European Union (EU) and some internal factors, such as the imposed fiscal austerity measures and lowered export competitiveness due to high wages and the decline of Nokia. Finland’s economy registered two consecutive years of negative growth in 2012 and 2013 with real GDP declining by 1.5% and 1.2% respectively. Moreover, output continued to fall in the first quarter of 2014 by 0.2% on a year-on-year (YoY) basis. Weak investment and subdued private consumption continue to undermine the growth potential of Finland’s economy. However, there are some bright spots that can be gleaned from the latest private consumption data which turned to growth (of 0.6% YoY) during the first quarter of the current year. Industrial production has also been shrinking since September 2011, with only two periods of negligible YoY growth amounting to 1.1% in December 2011 and 0.6% in July 2012. According to the latest report of the Finnish Finance Ministry, the volume of exports will return to growth in 2014, driven by the rebound of economic growth in Finland’s most important export markets – Germany, the Netherlands, Sweden and the USA – and by the gradual acceleration of global trade after a few quieter years. The data for the first five months of 2014, however, do not show signs of improvement. Total export receipts contracted slightly by 1.9% between January and May (totalling EUR 23 billion compared to EUR 23.5 billion for the same period of 2013), in line with declining exports to all of its main trading partners, apart from Germany. Likewise, labour market trends remain precarious. The unemployment rate has stood at 8.6% since December 2013, while employment has been consistently declining for almost a year and a half. The prospects of improvement are overshadowed by structural problems in the labour market with the available job vacancies contracting for seven consecutive quarters. Data trends over the next few quarters will be crucial in revealing whether the current economic downturn is just a second “dip” of the 2009 recession or Finland’s economy is on the verge of a deep depression. By Kamen Parushev - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog