ETLA: Paper industry labour dispute reduced Finland's economic growth outlook to 1.7 percent

Private consumption on increase, as is number of new job opportunities

Sixten Korkman

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The Research Institute of the Finnish Economy, ETLA, estimates that Finland's GDP will only increase by 1.7 percent this year.
      At the beginning of June, ETLA forecast economic growth of 2.2% for the current year.
      The revision of the growth prediction is due for the most part to the paper industry labour dispute and production stoppage that lasted a month longer than had been assumed in June.
      ETLA estimates that the industrial action has caused a 12% reduction in the paper industry's output for 2005.
      As the growth rate for this year has been depressed by the paper industry squabble, thus lowering the comparison figures, ETLA has adjusted its growth prediction for 2006 from 3.7 to 4.1 percent.
     
If the effects of the industrial action were to be excluded, ETLA's growth predictions for this year and next would stand at 2.7 and 3.2% respectively.
      According to Pasi Sorjonen, chief of forecasting at ETLA, the September report includes two positive developments. "Private consumption is showing a promising increase, and 40,000 new jobs have been created compared with last year's average."
      According to ETLA's prediction for this year, Finland's economic growth is faster than the eurozone average (1.4%), but lags behind the United States (3.6%) and Asia (6.1%).
     
"The economic growth in the eurozone has stagnated for five years now", points out Sixten Korkman, the newly-appointed Director-General of ETLA.
      Korkman, who spent ten years working as Director-General of Ecofin, the economic section of the Council of Ministers of the European Union, states that the bleak economic growth and gloomy employment prospects stir up "fear, pessimism, and resistance to change" in Europe.
      Korkman blames the Union's large member-states for Europe's poor state of affairs. "Nothing has been done while difficulties keep piling up."
     
Finland has performed better than the bigger EU countries, because we learned our lesson from the recession of the early 1990s and now instinctively adhere to expansive economic policy, Korkman argues. The other obvious factor that has fuelled growth is Nokia's success.
      Korkman emphasises the importance of local governments. "The number of municipalities the country has been divided into is irrelevant. What is important is how efficiently and economically they can produce services."
     
The latest ETLA prediction was compiled before the arrival of Hurricane Katrina. Natural disasters usually cut into productivity, but the subsequent rebuilding always stimulates growth.
      Katrina caused a price peak in the already overheated global oil market. ETLA predicts that the price of crude oil will be 62 dollars per barrel at the end of this year, and 58 dollars at the beginning of 2006. At the moment it fluctuates between 60 and 70 dollars.
     
Unlike many of the Finnish MPs, Korkman opposes the idea of lowering the excise tax on fuel.
      According to Korkman, the effects of lowering the fuel tax would have to be compensated by increasing some other taxes. Secondly, the oil producers - the Saudis, the Norwegians, and the Russians - who are able to raise prices now that global demand is high, would first and foremost reap the long-term benefit of the tax reduction.
      The initial signs are that there is now downward pressure on soaring pump prices after several countries - Finland among them - agreed to sell some of their strategic reserves into the market to offset the shortage anticipated after Gulf Coast refineries were put out of action.


Previously in HS International Edition:
  Large number of MPs would cut fuel tax to keep pump prices in check (8.9.2005)
  Labour dispute of paper industry to have small effect on economic growth (20.5.2005)

Links:
  ETLA, The Research Institute of the Finnish Economy

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