Shopping the good shop against the threat of recession

Just under EUR 2 billion in tax refunds will be pumped into Christmas shopping

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By Katri Kallionpää
     
      The third Sunday in November is foggy. Black clouds hang over the horizon like the threat of recession.
      But in the shopping malls it is all bright lights and glitter: many are already doing their Christmas shopping.
      At the Stockmann department store in Helsinki’s Itäkeskus mall, Teija Mäenmaa and her 12-year-old daughter Emilia have come out from Kulosaari, a few stops down the metro line.
      They are picking out decorations for the Christmas dinner table. This Christmas the colour scheme is silver and white.
     
“The most important thing about Christmas is the being together part”, Teija Mäenmaa says. This is one reason why the table setting has to be designed with care.
      Gifts are important, too - at least for Emilia, who numbers music among her hobbies. She is hoping for an electric guitar for Christmas.
      And what about the dog, Viivi? “Well Viivi is definitely one who gets a lot of presents”, laughs Emilia.
     
Teija Mäenmaa says she is aware that the growth in the economy cannot go on indefinitely. “The forecasts are out there”.
      Nonetheless, she is not afraid of recession. She says the family has always done its buying carefully and sensibly.
     
Many others think like Mäenmaa: the Finns’ confidence in the positive outlook for their personal economy is strong. Only in Sweden, Denmark, and Great Britain are consumers fired up with a greater sense of optimism.
      The retail branch has estimated that Christmas sales will be up this year by around 4 to 5 per cent on 2006, showing the same growth as last year.
      Many will be using their tax refunds to finance their buying. This year more than 3.2 million people will be picking up a windfall from the tax-man, totalling around EUR 1,700 million. That is roughly 200 million euros more than last year.
     
At least Sirpa Witick from Kontula says she intends to use her tax refund for Christmas shopping. She and her husband Mikael Witick are eyeing up Advent calendars in Stockmann’s stationery department.
      The Witcks bought an apartment two years ago. They believe they will be able to cope with the loan repayments come what may.
      Another couple who bought an apartment a few years ago are Jaana Kaukonen and Patricio Mera from the city centre district of Kallio. They are picking out a new DVD player for themselves.
      Here, too, there are no worries about money in evidence: “We are going to move ahead in our respective careers”, believes Jaana Kaukonen.
      Hitomi Ruoho, who has come in from nearby Sipoo, says she is more worried about climate change than about a slowing of economic growth.
      “The steps being taken by the Japanese government are causing me to worry, not so much the Finnish measures”, she says as she chooses Christmas gifts in the Marimekko outlet along with her little boy Niko Tsuyoshi Ruoho.
     
The pallid Sunday daylight finally gives up the ghost and surrenders into full-blown darkness. In the northern suburb of Itä-Pakila, a spacious and stylishly appointed town house in a terrace is up for sale.
      The first to arrive for the Sunday evening showing by realtors Huoneistökeskus are Juha and Maire Vermasvuori.
      They currently live in a rental apartment in Kruununhaka in downtown Helsinki.
      They are followed through the door by Ilkka and Riitta Harikoski, who are planning to move out and up from their apartment block just ahead of a “stunningly expensive” plumbing refit affecting the entire apartment block. They are looking at row houses like this one.
     
Financing the new home is not a problem. “We already have a loan. Pensioners do not have a lot in the way of spending, and the biggest outgoing item will be the loan repayments. If push comes to shove, we will put the house up for sale”, says Juha Vermasvuori.
      Ilkka and Riitta Harikoski are equally confident about taking a moderate loan: “We are trusting that when the time comes, our pensions will be paid out”, says Riitta Harikoski.
      “Common sense says the economy will continue to grow, albeit at a slower pace”, adds her husband.
     
The residential area, made up mostly of detached properties, is peaceful this Sunday evening.
      Lights shine out from behind the curtains, people are watching TV, ironing shirts, and kids are doing their homework for Monday morning.
      At the office of the National Conciliator downtown, the mediation board set up to resolve the conflict between the nurses and the local authority employers is putting together a settlement proposal to fend off the impending mass resignations by public sector nursing staff.
     
On Monday, Nordea Bank publishes a study that indicates the Finns’ ability to buy an apartment has slumped to the levels of the recession years of the 1990s. In the period from July to September housing affordability was at the same weak level as in 1993.
      The Confederation of Finnish Industries (EK) says that the financing woes of smaller companies have increased.
      The council of TEHY, the Union of Health and Social Care Professionals, agrees unanimously to the mediation board’s proposal on salary increases for the nurses.
      With one labour dispute resolved, another begins: some dispensing chemists are hampered as pharmacists start a strike.
     
On Tuesday, Pekka Heusala arrives at the Porsche Centre in Viikki to take delivery of a brand-new Porsche 911 GT3 in Carrera White.
      Along with him is his wife, Anneli Heusala.
      The dealers rush to give her a tall latte as soon as she walks into the showroom.
      It is also something of a red-letter day for AutoCarrera's sales manager Harri Asunta: the keys to as many as three new Porsches are being handed over in a single day.
     
“This has only happened to me the once before”, says Asunta, who has been in this job since1998.
      The reason for the mini-boom is the reform of sales tax on vehicles, which is going to raise the price of a new Porsche appreciably from the New Year.
      Right now a 911 GT3 comes with a price-tag of EUR 179,000, and from January 1st 2008 it will be EUR 199,000.
      Pekka Heusala’s decision to buy the car was influenced most by the knowledge that this particular model is going out of production. “This is an icon”, he says.
      Heusala, too, takes a confident view of the present economic outlook. “Companies are making decent profits and there is a good vibe in the air.”
     
He believes that the generation who experienced the last recession will not make the same mistakes as fifteen years ago.
      “Those who came into the job market more recently may not have the same kind of memories holding them back”, says Heusala, and he accelerates out and onto the Lahti motorway in his new set of wheels.
     
On Wednesday, the newspapers report that those people who got into financial difficulties fifteen years ago and who are still stuck in dealings with the debt enforcement authorities will see debts written off to the tune of EUR 1.6 billion from next spring.
      On the same Wednesday, share prices across Europe go south with some vigour.
      The euro rises to a new high against the dollar, the US’s subprime mortgage credit crunch is getting deeper, and oil prices are heading for the penthouse.
     
The Mäenmaas, Witicks, and all the other consumers are those heroes of the market place who by their purchases are fighting against the slowing of the national economy.
      If everyone were suddenly to pull in their horns and start saving, Finland would slide rapidly into recession, say the experts.
      Good times may have emboldened people to ask for increasingly brazen salary hikes.
      “Boom periods are also psychological phenomena. People expect that the rise will go on and on indefinitely. The bygone recessions and slumps are easily forgotten, and people do not do the right sums on the impact of taxes and prices on purchasing power”, says Hannu Kaseva from ETLA, the Research Institute of the Finnish Economy.
     
“Costs spiral out of control, as is happening right now. People only change their consumption behaviour at a delay of around a year from when the market turns one way or another. When things eventually get weaker to the point where they sit up and take notice, on go the brakes with a vengeance, and the country heads into recession.”
      According to Kaseva, an economist specialising in public economy and investment forecasting, the information coming out of companies suggests that the period of slower growth has already begun.
     
In the annals of economic history, downturns tend to follow boom periods with an interval of between two and three years.
      The current rise has been going on since 2004.
      The TEHY wage settlement increased public optimism, but the effect will only be a momentary one.
      “Wages are lapping over the level that companies and the public sector can bear at current prices and taxation levels”, charges Kaseva.
      What he sees as particularly worrisome is that the municipalities have not managed to get their financial house in order even during the long boom.
     
He says it is a shame that decisions to trim income tax rates have been put off a couple of years into the future.
      Bullish conditions and a rapid growth in employment would, in his view, have been a more suitable moment to take a file to the social welfare systems in order to shape them in the direction of encouraging work.
     
Can the consumers still rescue the nation? At least it is worth making sure you don’t neglect saving your own ecoonomic hide.
      Kaseva advises careful consideration of big purchases. “It is not on to take too big risks at this stage. There is no sense in lulling yourself with the illusion of uninterrupted growth in incomes.”
      Pentti Hakkarainen, a member of the Board of the Bank of Finland, believes that the key thing is to make sure one’s own finances are in balance. “The economy is on a sound footing when the public build their own personal economy to last - and the same goes for businesses and the public sector.”
     
This Sunday, too, people will be out in the shops, looking at apartments, and pondering whether to trade the car in for a new one.
      The evening will fall just a touch earlier than it did last weekend.
      And the economy will grow, but maybe just a shade more slowly than it did seven days ago.
     
Helsingin Sanomat / First published in print 25.11.2007


Previously in HS International Edition:
  Economic rise also benefited middle-income Finland (2.11.2007)

Links:
  ETLA, the Research Institute of the Finnish Economy
  Nordea Bank: Housing Affordability

KATRI KALLIONPÄÄ / Helsingin Sanomat
katri.kallionpaa@hs.fi