Recession to spread into Helsinki only gradually and via services

Economic crisis will hit retail trade and public sector after a delay

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By Kaisu Moilanen and Jaana Savolainen
     
      Economists predict that the Greater Helsinki area is 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.
      Today there are few signs of a recession in the Helsinki metropolitan area, for not many export industries are located in this part of the country. So far the construction industry has suffered the most serious damage.
     
In the long run, the lethargy of market demand is bound to affect both private and public sector services, which together provide a large number of jobs for the capital region.
      According to cautious estimates, the effects of the decline are likely to spread to the service sector in the course of 2009 and 2010. The experts are nevertheless covering themselves by pointing out that predicting is a very difficult science.
     
Currently, the entrepreneurs in the capital region are still doing well, even though the consumers’ buying habits have become slightly more cautious, says Jorma Nyrhilä, the Vice-President of the Helsinki Region Chamber of Commerce.
      However, if people are too cautious, they are eventually likely to arrest economic growth through their own actions, he warns.
      Since the autumn, the economic growth of the Helsinki Metropolitan area has been clearly slower than last year, namely around 3 %. Nevertheless, Nyrhilä says that three per cent is still growth, however you slice it.
      ”It is not at all self-evident that this region will slide into a depression. After all, business is still reasonably good”, Nyrhilä notes.
     
”In certain branches the decline is more conspicuous, including car dealerships, as well as in sales of luxury goods, furniture, and home electronics items. So far, the Christmas sales have nevertheless shown a growth of 2%”, says Managing Director Juhani Pekkala from the Federation of Finnish Commerce.
      Consumers are now being advised to keep up with their consumption habits.
      ”Even those consumers who are not at the risk of losing their jobs have adopted more cautious buying strategies. Instead, they should now use domestic services in order to prevent a real recession period”, says researcher Pekka Ylä-Anttila from the Research Institute of the Finnish Economy (ETLA).
     
Ylä-Anttila acknowledges that if the global downturn turns out to be a long one, it will inevitably start to be felt in earnest in the capital region's services and in the public sector.
      Then again, he says, this recession is a very exceptional event, and so the speed with which it spreads into services could take everyone by surprise. Even so, he concurs with others in saying that it will be towards the end of next year and into 2010 that the effects will be felt hereabouts.
      When it comes to the housing business, the decline is to be seen especially in the prices of large and expensive homes, estimates Ylä-Anttila.
      ”The demand will be increasingly for small apartments and rental flats, and we could even see rents heading upwards”, he predicts.
     
Before long, the recession will lead to a decline in tax revenues, which could in turn complicate the organising of public services.
      ”Keeping up with the current service level could become challenging”, says researcher Petri Böckerman from the Labour Institute for Economic Research.
      However, economists say that the Greater Helsinki area has more fat to deal with the lean times ahead than do many other areas.
      The finances of the municipalities in the area are stable and the industrial structure of the region is strong, which is a good buffer against the upcoming recession, the experts point out.
      ”Compared with regressive areas affected by migration losses in the eastern and northern parts of the country, the Greater Helsinki area is a wealthy region. It is quite a different matter to become unemployed in the province of Kainuu from what it is in Helsinki. The capital has a large number of vacancies and people are not forced to move away”, Böckerman notes.
     
The employment offices in the Greater Helsinki area have already seen some signs of recession. The year-on-year decline in unemployment in the autumn has been only 2%, compared with 20 % last spring.
      In Helsinki, the number of people who had been laid off was more than 16% higher in October than in the corresponding period in the previous year.
      The gloomiest prospects have been seen in the construction industry, where signs of a recession appeared quite some time ago, before the subject started to occupy the headlines.
      ”The decline can be seen in the Greater Helsinki area as well as anywhere else”, says Kyösti Suokas, the Vice-Chairman of the Finnish Construction Trade Union.
      ”The number of unemployed people in the construction industry will be in the tens of thousands next year. How many of them are resident in the Greater Helsinki area is impossible to tell. Foreign workers will have to go home, while a part of employees in the construction business will remain out of work”, concludes Suokas.
     
According to Heidi Holmberg, an economist at Sampo Bank, clients have become very reserved when it comes to their financial matters. Caution seems to be the order of the day among the customers she advises daily on loans, pensions, and everyday expenditure..
      Nonetheless, the first signs of recession are poking through here and there.
      "People are trying to rearrange their loans, asking for non-amortizing months, while some difficulties have already emerged with credit cards and general-purpose consumer loans”, Holmberg reports.
     
Memories of the recession of the early 1990s have not faded, and people looking to change apartments are now making sure they sell their old home before signing on to anything new: the previous generation's horror stories of negative equity and double mortgages have made everyone more careful.
      It was very different the first time around - Finland went into recession on that occasion at a full gallop, as people took risks and believed that everything could be worked out with just a little more borrowed money.
     
Holmberg says that for her own part she has not started to change her buying habits, but then again she is not a shop-till-you-drop type anyway, and she has undergone a modest ecological awakening.
      She believes, based on 25 years of experience in the banking sector, that we will only start to see concrete shifts in consumer behaviour next year. "In such a short time as this, you aren't really going to get much change."
     
At the Forum shopping mall, Taru Haverinen, who works in the Chico's Restaurant there, says she is using money in just the same way as before the grim economic news started to come through.
      "A lot of spending goes into basic living expenses such as foodstuffs, but I do shop quite a bit, too. I'm sure I could find places to save money, but I intend to start saving only when I have to."
      Eating out in restaurants is a classic target for penny-pinching when hard times come. Haverinen, 18, nevertheless does not think that the work is going to run out.
      "There is a shortage of staff in the restaurant trade, or at least they seem to be constantly looking for new people, and are reluctant to let old employees go."
     
Helsingin Sanomat / First published in print 19.12.2008


Previously in HS International Edition:
  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)
  Increasingly pessimistic Finance Ministry not predicting depth of slump (19.12.2008)
  Labour Ministry predicts 13,000 new jobless next year (12.11.2008)
  Economists: Finland better prepared for economic problems than in early 1990s (8.10.2008)

See also:
  Shopping the good shop against the threat of recession (27.11.2007)

Links:
  Federation of Finnish Commerce
  Research Institute of the Finnish Economy (ETLA)
  Helsinki Region Chamber of Commerce
  Labour Institute for Economic Research

KAISU MOILANEN AND JAANA SAVOLAINEN / Helsingin Sanomat
kaisu.moilanen@hs.fi, jaana.savolainen@hs.fi