Population 5.427 million
GDP 247.189 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
3.3 |
2.7 |
0.4 |
0.9 |
|
Inflation (yearly average) (%)
|
1.7 |
3.3 |
3.1 |
2.5 |
|
Budget balance (% GDP)
|
-2.5 |
-0.6 |
-1.8 |
-1.5 |
|
Current account balance (% GDP)
|
1.5 |
-0.7 |
-1.4 |
-1.2 |
|
Public debt (% GDP)
|
48.6 |
49 |
53.4 |
55.5 |
|
(e) Estimate (f) Forecast
|
||||
STRENGTHS
- Good policy track record
- High level of research and development spending
- Cutting-edge industries
- Contained private debt
WEAKNESSES
- Highly vulnerable to the international economic situation
- Exports concentrated on capital goods, the object of sluggish world demand
- Dependence of the Finnish banking sector on Swedish and Danish financial sectors; variable rate bank credit focused on property
- Ageing population
Risk assessment
Weak growth, mainly led by external demand
Less affected than other countries by the eurozone crisis, due to a strong banking sector, controlled public finances and low exposure to debt and economic situation of the weakest European countries, Finland has nonetheless seen growth fall. This is mainly due to a drop in foreign demand, particularly from its main customers, Sweden and Germany (sales to Russia, on the other hand, are up). The Finnish economy is small and very open (exports of goods and services represent roughly 40% of GDP), which increases the impact of this drop. Though domestic demand partly offsets the sluggishness of exports, it also shows signs of weakness. In 2013, lower household and business confidence, increased unemployment, stagnant purchasing power and the pursuit of a fiscal consolidation policy will curb the recovery. Though households’ room for manoeuvre is reduced, as shown by low savings levels (about 8% of disposable income), consumption is not expected to fall sharply. Moreover, residential investment is slowing but the property market remains stable. In addition, the private sector is not over-indebted and financing terms remain favourable as banks are sound. Inflation is above the regional average, pushed up by the rise in indirect taxation. Collective agreements, however, provide for moderate wage rises. These will nevertheless be above productivity growth.
Public debt under control
The slowdown in growth affected budget results in 2012 but the consolidation policy begun by the government will continue. In 2013, public revenues will benefit from a VAT rise, from the non-adjustment of income tax brackets in line with inflation and from a slight economic recovery. At the same time, spending is not expected to increase in real terms. Public debt will rise slightly while remaining at a reasonable level. In the longer term, however, pension and health service reforms will be necessary to alleviate the growing burden imposed by the ageing population on the public accounts.
Manufacturing sector losing momentum
Weak global demand for capital goods and the erosion of competitiveness are affecting Finnish exports. The investment rate is declining and manufacturing production has dropped significantly since 2008. The current account went into deficit in 2011. Sectors such as paper machines, ship engines and heavy moving and construction equipment are not having an easy time at the moment. Moreover, the country is facing losses in export market shares in the forestry sector and in the electronics sector, which is undergoing restructuring. Despite these difficulties, company insolvencies did not increase in 2012.
