Research institutes predict stagnation of economic growth next year

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Various research institutes predict that economic growth will stagnate completely next year.
     According to the latest assessments by the Research Institute of the Finnish Economy (ETLA), it is likely that growth in GDP will fall to zero next year, and that zero growth might continue in 2010 as well.
     The views of ETLA have changed rapidly in just a couple of weeks, as the financial crisis shaking the world economy has come to a new head.
     
As recently as late September the institute expected economic growth of 1.8 per cent next year, and 2.5 per cent for 2010.
     “A deep and a long recession is ahead”, said ETLA managing director Sixten Korkman.
     
Other economists largely agree with the views of ETLA. Jaakko Kiander, head of the Labour Institute for Economic Research, says that even grimmer development is possible.
     “There is an approximately 20 per cent possibility that GDP might even decline by one per cent next year compared with this year, and that 2010 would still be zero growth”, he says.
     According to Kiander, Finnish economic development depends on large countries and on the duration of the financial crisis.
     “The longer the crisis lasts, the more serious the consequences will be for the world economy, and consequently, for Finland.”
     
At the Pellervo Economic Research Institute (PTT), director Pasi Holm is slightly more optimistic. He believes that growth in GDP will remain positive next year.
     “It is possible that the Finnish economy will grow a bit next year, by 0.5 percentage points”, he says.
     He also does not expect unemployment to surge, because the members of the baby boom generation will start retiring in the next few years.
     
The change in the economic situation has been so rapid, that institutes doing the forecasting have not had enough time to reassess their predictions to fit the current situation. The escalation of the financial crisis has hit export industries especially hard.
     The latest ETLA assessment is not an actual forecast; Pasi Sorjonen, director of forecasts at ETLA, says that no new economic numerical data is available uet.
     ETLA has put forward two alternate models for next year. In one of them, GDP growth will be an even zero in both years. In the other, zero growth will predominate next year, and in 2010 there should be some recovery, with growth reaching 1.5 per cent.
     In the better alternative, the unemployment rate would reach seven per cent in 2010, with the number of jobless increasing by 22,000. In the grimmer alternative, the unemployment rate would be eight per cent, with 45,000 more people unemployed.
     
According to ETLA, things will get even worse if central banks and the governments are not successful in shoring up the financial markets.
     On the other hand, developments could be better than predicted, if prices of oil and other raw materials continue to decline, and if monetary policy eases significantly.
     At the end of October, ETLA commissioned two surveys in which corporate managers and households were asked for their expectations in the coming years.
     The results indicate that about half of all companies reported lower sales and orders in the previous six months.
     One in five have postponed or cancelled planned investments and one in ten companies have cut staff or implemented temporary layoffs. Among consumers, 40 per cent say that they have reduced their consumption, but on the other hand, just four per cent felt that the reduction was fairly, or very big.


Previously in HS International Edition:
  Major Finnish investors seek to calm worries about financial crisis (30.9.2008)
  Economists: Finland better prepared for economic problems than in early 1990s (8.10.2008)
  Katainen expects financial crisis to hit Finnish economy through corporations (1.10.2008)

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