Smoking ruins behind, thick mists ahead as the economy enters a new year
EDITORIAL
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For fairly obvious reasons, the turn of the year has traditionally been regarded as a vantage point from which to look back and ponder what is to come.
On this occasion, the economic analysts who pause to consider past and future have seen only destruction and smouldering ruins over their shoulder, and practically impenetrable mists up ahead.
Aside from the reduced visibility on offer, the science of forecasting changes and turning-points to come has met with a severe devaluation in recent months: the timing and depth of the crisis that overwhelmed the world economy in the latter part of 2008 went largely unpredicted.
It was not that the warning bells - for example the budget deficits in the United States and the problems in the derivatives market - went unheard, but we have been hearing these buzzing and ringing noises here and there for years.
Apparently another thing that still remained to be fully grasped was just how closely the big economic players of the world are dependent upon one another, and how the mighty pillars of the global economy are actually made from a substance known as confidence, which is subject to rapid and fatal erosion.
Now the global economy is pitching forward into recession.
The crisis of confidence spawned by uncertainties in the financial sector has caused the foundations of the real economy to crumble.
Economic processes that adhere to the "JIT" or "just-in-time" principles of reduced inventories start to cough and splutter when the supply-chains of contractors and sub-contractors are stretched and broken by financial difficulties.
Exports sag as markets dim the lights and hunker down all over the place at the same time.
The next victims to step into the firing line after the export industries are those companies who provide services to exporters, and after them come firms delivering goods and services to the domestic market.
And this pervasive vicious circle is spinning away at the same time and in almost the same phase in all countries at once.
As anyone might have guessed, Finland was not under some magic protective shield.
How could any country that lives off its exports have ever expected it might be?
Yes, we may be a couple of footsteps behind those countries that have gone deeply into the mire - for example in terms of the growth in unemployment or the turnaround from positive to negative witnessed in GDP growth - and we may as yet still be on considerably firmer ground than those others - for instance in the basic health and stability of the national economy and the corporate sector.
But for all that, there is no escaping the direction our feet are headed.
The confidence barometer readings taken by Statistics Finland and by the Confederation of Finnish Industries (EK) make bleak reading. Consumers' confidence in the Finnish economy has collapsed, even though respondents still regard their own prospects as just about bearable.
Industry sees the situation being just as grim as during the last recession [of the early 1990s], and reductions in the workforce are on the way. And if those job cuts do materialise, then before very long they will inevitably depress consumer confidence in the personal economy as well.
When things are lousy, it is easier to bear if one knows roughly for how long one will have to grit one's teeth.
Unfortunately on this occasion, nobody has this information.
At present the spread-betting as about as wide as it could be: some are saying the recession's back will be broken in a matter of months, while others speak of a matter of two or three years.
It might be, or then again it just might not.
All the same, this is no final apocalyptic Armageddon of the economic world order.
The global economy will recover; it will lick its wounds, the excesses of the boom period will be planed away, and the dents that were made in the fender-bending of the recession will be beaten out.
Seen from the other side of that recovery, it may well be that we will recognise the end-days of the powerful boom as the sickness, and the credit-crunch and the recession that accompanied it will be seen as the first part of a necessary recuperation process.
This does not of course do anything to ease the plight of those who find themselves the innocent victims of the economic meltdown.
It is unfair. This year, in Finland and elsewhere in the world, the shadow will hang over perfectly excellent workers and perfectly healthy companies that have no other earthly reason to be under threat.
Many developing nations that were reaching upwards toward a better standard of living will slide back to where they started from, and many emerging economies will lose the achievements they have made in the fat years of high GDP growth.
If we are looking for a predictor for the economic conditions in the year just getting started, the bits of molten tin dropped into cold water on New Year's Eve were no less reliable than economic forecasts that rely on data and curves from the past in a time such as this that is quite without precedent.
Besides, as it splashes into the water, the tin often seems to form itself into an arch or bridge.
In terms of the economy, this means reflation, lower interest rates, new financing models for companies, flexibility in the labour market, the avoidance of redundancies - all those means that we can deploy to get over the period of recession.
Helsingin Sanomat / First published in print 4.1.2009
Helsingin Sanomat
Smoking ruins behind, thick mists ahead as the economy enters a new year