Increasingly pessimistic Finance Ministry not predicting depth of slump

Finance Minister Katainen not planning spending cuts

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The Finnish government is not planning any cutbacks in state spending, even if this leads to a budget deficit next year, said Minister of Finance Jyrki Katainen (Nat. Coalition Party) on Thursday.
      In its fresh cyclical forecast on Thursday, the Ministry of Finance would not make any very precise predictions about next year.
     
In the previous recession in the 1990s, GDP declined by more than ten per cent in a single year. Katainen does not expect such a steep fall.
      “If something has to be said, then -0.5 to -1 per cent. Maybe something like that."
      Katainen also says that state indebtedness will go “to the extreme limits”.
      “I cannot give a specific figure in the billions. Finland is going into the crisis from the best position, but we will end up in the worst position because the age structure of the population is weakening the fastest. This limits our ability to borrow.”
     
During Parliament’s question time the left opposition grilled Katainen about a possible list for cutting costs. Katainen asked that the opposition stop scaring people with lists of cutbacks, because nothing like that appears to be in the cards.
      In its cyclical survey the ministry predicts that overall production will be scaled back mainly because of the poor outlook in the world economy. Private consumption should stay afloat at least to some degree, but investments are set to collapse, and unemployment is getting worse.
      All of this will also manifest itself in public finances, which is reflected in the review of the stability programme, which was also made public on Thursday.
     
GDP is expected to go into negative territory next year. The growth figure for this year has been downgraded to 1.7 per cent.
      Almost completely missing from the Finance Ministry’s forecast are figures for next year. The few numbers that are presented are given with qualifications. Exports are declining for the first time since 2003, as is industrial production.
      The employment situation is expected to weaken rapidly. The number of those who are employed is “likely to decline” by 1.5 per cent, and the unemployment rate is “likely to increase” by 1.5 percentage points from the present level. Growth in household consumption is slowing down by one percentage point, but investments are expected to be about five per cent lower than in 2008.
      Real income for households is growing by an estimated 3.5 per cent, and consumer prices are “likely to rise” by just one per cent on average.
     
Under the stability programme Finland is staying within the limits of the stability agreement of the Economic and Monetary Union.
      The deficit in public finances is expected to remain below three per cent of GDP. Indebtedness is increasing, but even that will be about 34 per cent in 2012.
      The figures for public finances appear positive by European standards, but the only reason for this is the surplus shown by pension funds. State and municipal finances are actually doing quite poorly, with deficits expected in each of the four years under examination - 2009-2012.
     
On Thursday, Katainen backtracked somewhat on previous comparisons that he had made with the deep recession of the 1990s.
      “If we add the pluses and minuses of both periods, I cannot say which situation is more serious.”
      “There are no markets where exports would be going well. In that respect we are in a worse situation than in the early 1990s, but many things are better: corporate balance sheets, the interest rate level...”
      “What is worse is that the economic situation is dimmer than it was then. Now the whole world is in turmoil. The fog is gloomier than in the early 1990s.”

More on this subject:
 Finance ministry upgrades recession readiness

Previously in HS International Edition:
  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)
  Bank of Finland: Recovery not expected to begin before 2010 (10.12.2008)
  Finance ministry: lower taxes, less inflation, recession can be avoided (19.11.2008)

Links:
  Ministry of Finance Stability Programme update - Government seeks new measures to boost economic growth and employment

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