Surge in productivity brings exceptional growth to Finnish economy

Unemployment declines to 6.7% in November

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The ministry of Finance released its Economic Bulletin on Tuesday that is unusually short on negative news. Finland is currently riding on the crest of a boom; at least when measured against al macro-economic indicators, everyone seems to be doing well.
      Economic growth has exceeded previous forecasts. In January-September this year overall production grew by more than six per cent, and the estimate for growth in the whole year is 5.9 per cent, which is one point higher than had been predicted in the summer.
      Thus, growth this year is doubling from last year. On the other hand, the Finance Ministry also predicts that the party will be over fairly soon. Already next year growth is expected to recede to its normal level of three per cent.
     
Growth has been spurred this year by an exceptionally rapid improvement in productivity. Its share of overall growth is estimated at 4.5 percentage points. Labour input accounts for just 1.5 percentage points of growth.
      Productivity is growing 4.2 per cent this year, which is twice the figure for last year. Traditional economic doctrines say that improved productivity is the best, if not the only way to raise standards of living without spurring inflation.
      Inflation in Finland is well under control. The consumer price index is expected to rise by just 1.6 per cent this year.
     
It remains to be seen if the growth will be reflected in rising personal income and standards of living. The forecast is not very good for this, as the Ministry of Finance predicts that the earnings level index will rise this year by 2.9 per cent, which is significantly less than in the previous four years.
      For instance, in 2003 productivity grew by just 1.2 per cent, while the earnings index was four per cent.
      In a few other countries, such as the United States, the fruits of increased productivity have not been distributed equally among all earners. Instead, they have mainly been used to beef up corporate profitability at the expense of wage earners. The same appears that this is happening in Finland as well.
     
Wages in the USA have not risen even though the country is close to full employment.
      The same situation, which was seen to be a remote dream just a few years ago, is getting to be closer to reality in Finland as well.
      On Tuesday, Statistics Finland released the latest unemployment figures, according to which the unemployment rate was 6.7 per cent in November, a decline of 1.3 percentage points from a year back.
     
The sharp growth is improving the state of Finnish public finances. Tax income grew by seven percent in the January-November period. The public sector surplus is about three per cent of GDP, which most other countries in the euro zone can only dream of.
      The amount of public debt is going down this year to 38 per cent of GDP.


Links:
  Ministry of Finance Economic Bulletin December 2006

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