Finnish economy fighting fit
The Finnish economy wrote up a record performance in 2006. Preliminary estimates put GDP growth at six per cent, among the highest in the OECD. Among the west European countries, possibly only Ireland did better.
In speed of growth, Finland nevertheless lagged somewhat behind its business world flagship, Nokia, which accrued EUR 41 billion in turnover last year. Nokia's net sales figure is already higher than the entire Finnish budget and the mobile phone giant made a record profit of EUR 4.3 billion.
The national final accounts have no line for a profit figure. From the nation’s point of view, the employment rate or rise in disposable income could be the criterion for success. Domestic demand in Finland rose only a few per cent, showing that the whole weight of GDP growth does not have an impact on household finances.
In fact, growth has been fed largely by successful exports, for which we must thank favourable trends in the world economy. Demand in Asia, in particular, has brought in orders for Finnish industry. The order books of many engineering companies are also full for 2007.
Some statistical confusion was caused by the two-month paper industry stoppage in spring 2005. This depressed the comparison level, boosting 2006 growth figures by around one percentage point.
For many years Finland suffered from an unemployment rate that was high by European standards, but the situation has improved along with the economy. Last year unemployment was down to eight per cent, which is below the EU average.
The strong growth in 2006 came as a surprise to Finnish economic forecasters. At the start of the year their estimate was around three per cent, but in fact the figure was roughly double that.
For 2007, the pundits again predict three per cent growth. This is a safe enough prognosis, because it is around the long-range growth rate. If it materializes it will not be enough to make Finland an OECD leader. Thus the economic outlook does not seem as rosy now as it did last year.
The uncertainty about 2007 is caused mainly by the global economy. If slowing growth in the USA also dampens trends in Europe, the result may be a fall-off on Finland’s key export markets.
Unemployment is expected to drop to seven per cent, but in publishing their final statements for 2006 Finnish listed companies have been warning of extensive layoffs. Amid ever tighter global competition, mobile phone subcontractors and contracted suppliers are especially likely to decide on staff cuts.
Nokia subcontractors Perlos and Elcoteq are transferring production out of Finland completely. The former, which specializes in mobile phone casings, is making a record 1,200 employees in Finland redundant, and the latter 500. This is dismal news for small localities such as Joensuu and Lohja, where the two companies have been among the biggest employers.
A large number of workers will also find themselves out of a job in the traditional backbone of the Finnish economy, the forest industry. Continuing falls in the real prices of paper and latent overcapacity in production are both forcing companies to make big cutbacks.
For Nokia, 2007 looks good. It can expect both profits and growth, which will please the stock market analysts. Indeed, the future of Finland’s economy overall looks bright. By almost every criterion the economy is expanding, as it is all over Europe. We are in the upward phase of the cycle. High unemployment is a problem common throughout the continent, not only in Finland.
However, not even Nokia can create more jobs in Finland, because it needs to be near its bigger markets in Europe, Asia and North America. And where Nokia leads, its Finnish subcontractors have to follow. But even though Finland’s most successful listed companies such as Nokia, UPM-Kymmene, Kone, Metso, Outokumpu and Wärtsilä shift production to cheaper countries, they are not planning to move their head offices. Finland still seems to be a good enough location for the headquarters of internationally listed companies.
By Eljas Repo
Eljas Repo is editor-in-chief of Arvopaperi, Finland's leading magazine for stock market investors.