Bank of Finland: Recovery not expected to begin before 2010

Liikanen warns pay hikes endanger export competitiveness

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The Bank of Finland predicts that Finland is facing a sustained recession lasting about a year and a half.
      Next year the Finnish economy is set to decline by 0.5 per cent. “In mid-2010 the economy will begin to recover slowly, but growth for the whole year will be just 0.7 per cent”, says a new forecast by the Bank of Finland.
      The decline is in sharp contrast with the 2005-2007 period, when the Finnish economy grew an average four per cent a year.
     
The decline that has now begun is seen as significantly more severe than the dip that took place at the beginning of the decade, says Bank of Finland Governor Erkki Liikanen, who presented the forecast on Tuesday.
     “On the other hand, it is still milder than the situation of the early 1990s.”
     Liikanen also said that the stimulus packages envisioned at the European Union were going in the right direction.
     “The recession can be softened through economic policy, but it cannot be prevented.”
     
Liikanen did not want to comment on the details of the stimulus package of the Finnish government.
     He also would not say if he felt that the package was the right size. He referred to the assessment recently put out by the International Monetary Fund, according to which the appropriate level of spending on economic stimulus was seen to be 0.5 per cent of GDP.
     The Ministry of Finance has committed taxpayers’ money to the effort, which corresponds to one per cent of Finnish GDP, according to the joint agreement by the EU.
     
Finland’s situation is seen as more stable by Liikanen than that of many other countries.
     Finland’s weaknesses include the fact that it now has long labour contracts in force, which include large pay hikes.
     These increases are seen by Liikanen to erode the competitiveness of Finland’s export industries at a time when the industries should be kept in good enough condition to bounce back once the recession eases.
     
The US Federal Reserve has announced new actions to keep the financial market alive. Few experts deny the need for support, but according to some assessments, the actions of the Fed have taken on the appearance of printing money.
     An aggressive increase in money in circulation is considered dangerous, because it could spur inflation.
     
When European Central Bank President Jean-Claude Trichet was asked last Thursday if legislation afforded the ECB the same kinds of measures as the Fed, he avoided giving a direct answer.
     Liikanen answered the question. “We have done much thinking on this matter. we are not focussed so much on legal issues, as we are on economic matters.”


Previously in HS International Edition:
  Research institutes predict stagnation of economic growth next year (30.10.2008)
  Poll: Finns optimistic that consequences of recession will not be severe (17.11.2008)
  Economists: Finland better prepared for economic problems than in early 1990s (8.10.2008)

Links:
  Bank of Finland press release: Governor Liikanen: Economic outlook has rapidly deteriorated

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