Recession affects Greater Helsinki area much faster than expected

Exports and construction first to collapse. What will happen to services?

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The recession has already hit Helsinki, even though economists predicted as recently as December that the Greater Helsinki area would be likely to slide into recessionary conditions no sooner than at the end of 2009 and at the beginning of 2010, when the effects of the financial crisis on the real economy trickle down into services.
     
Overall production in the capital region declined by some 0.5 per cent during the last quarter of 2008. The corresponding figure for the entire country was 3 per cent.
      So far the industrial sector, the construction industry, and the wholesale trade have suffered the most serious damage.
      The economic downturn is also reflected in the number of bankruptcy petitions. The number is believed to grow by 40 per cent in the course of the current year.
      The year 2009 is predicted to turn out to be very difficult particularly for restaurateurs and construction entrepreneurs.
     
The municipalities in the area are already operating under tight budgets, looking for opportunities for savings.
      For example the City of Porvoo made a decision on Monday evening to save a total of EUR 20 million by cutting investments, by closing down two schools, and by not filling some vacancies.
      Minister of Public Administration and Local Government Mari Kiviniemi (Centre) says that the new tasks to be assigned to the municipalities should be postponed.
     
Minister Kiviniemi feels that the municipalities cannot assume new responsibilities under the present economic situation. Nevertheless, no such decision was made in the government talks on Monday.
      Kiviniemi also recommends that large municipalities in particular ought to make investments.
     
As a result of poor export prospects, Finland’s industrial production and export trade began to shrink over the period from November to December. Finland was facing a period of economic downturn, which led to a decline of 15.6 % in industrial production, while overall exports dropped by 14.2 %.
      A number of Finnish corporations launched co-determination negotiations, triggering redundancies and widespread temporary lay-offs.
     
The Ministry of Finance has estimated that in 2009 the Finnish economy will decline by 4.4 %. If the estimate turns out to be accurate, Finland is to experience the most severe slump since the Second World War - excluding the exceptionally deep recession of the early 1990s.
      The present number of job-seekers is some 28,000 higher than the corresponding figure a year ago. Moreover, the construction of housing is likely to remain on the level of 1995.
     
Currently, the recession is gradually spreading into the Greater Helsinki area, when the effects of the decline are already being experienced by entrepreneurs in the private sector services.
      With the prevailing economic uncertainty, Finnish consumers’ confidence in their own economic situation is likely to start faltering.
     
In fact, private consumption declined already at the end of 2008, amounting to a fall on 2007 figures of 1.2 %.
      Looking forwards, a difficult task at the best of times, has become singularly awkward, with everything in an opaque blur.
      Questions to be answered include how the municipalities will cope with their reduced income; whether consumers will dare to spend and keep the domestic market afloat, given the likelihood of cuts in holiday pay and no bonuses, and the impact of mass unemployment possibly spreading to somewhere like Germany, for example.


Previously in HS International Edition:
  Recession to spread into Helsinki only gradually and via services (23.12.2008)
  Increasingly pessimistic Finance Ministry not predicting depth of slump (19.12.2008)
  Poll: Finns optimistic that consequences of recession will not be severe (17.11.2008)
  Bank of Finland: Recovery not expected to begin before 2010 (10.12.2008)
  Research institutes predict stagnation of economic growth next year (30.10.2008)

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