Industrial output collapses to level ten years back
Continued decline in new orders awakens fears of mass unemployment
Jaakko Kiander
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Statistics Finland released new distressing information on the state of Finnish industry on Friday.
Industrial output in August was 21 per cent lower than at the same time in 2008.
What is even more serious is that the number of new orders remains worryingly low. The entire factory-based industry reports 37 per cent fewer orders than in August 2008. In the metal industry the figure is 45 per cent on the minus side.
The number of new orders correlates directly with employment, the prospects for which are becoming worse all the time. The Ministry of Employment and the Economy on Friday concurred with the views of several research institutes, and predicted that unemployment would reach 11 per cent next year.
The number of those with jobs is expected to decline by 170,000 this year and next, and the employment level is falling to below 67 per cent.
Joblessness could fall even further if industry does not get new orders in the autumn.
In light of a few individual comments, the situation is not improving. “Everything will stop in early October”, said the manager of a metal industry company in Hyvinkää.
He said that massive price competition is under way to get the few orders that are available. This is devastating for profitability, and could portend a wave of bankruptcies for next winter.
“If order books don’t start filling up, there will be fear within companies that this is not just a temporary dip after all. In that situation, temporary redundancies will start turning into permanent ones, and the number of unemployed could grow by 100,000", says Jaakko Kiander, director of the Labour Institute of Economic Research (PT).
Some comfort could come from the fact that only one out of five Finns with jobs are employed in industry. Services employ far more people.
However, in July, output in the service sector was four per cent below what it was in July.
The slump has punished Finnish export industry with a heavy hand. Output in the metal industry is at the level that it was in 2001. All of industry has lost the growth of ten years and receded to the level of 1999.
This gives Kiander some food for thought. “Here at PT, we have been seeing the tender sprouts of new growth. The turnaround has happened abroad, and the consumer confidence indicators have not been bad. However, this new information is downright depressing”, he says.
There are few economic policy measures available to alleviate the situation.
Before joining the euro, we could have devalued. This is no longer possible. There have been attempts at an “internal devaluation” by bringing down labour costs with the help of moderate pay agreements, and lifting the social insurance contribution. This is a road that cannot be travelled very much further.
Kiander feels that it is premature to speak of an exit strategy, in the form of actions aimed at changing stimulus-based economic policy into one that would slow down state indebtedness. Stimulus and support for companies needs to be continued, he says.
Helsingin Sanomat
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| 12.10.2009 - TODAY |
 Industrial output collapses to level ten years back |
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