This is a translation of this news item on Finnish Yle News. It is almost an exact example of the ‘jobs recovery is always two years in the future’ -thesis.
Nordea revised its forecast for Finnish economic growth downwards – “the recovery of the economy escapes again”
According to the latest forecast by Nordea the Finnish economy shrinks this year by one percent, while a previous forecast projected half a percent. Also Nordea’s economic growth forecast for 2014-2015 is revised downwards.
Nordea has revised its forecast for Finnish economic growth for the near future. According to the latest forecast by Nordea the Finnish economy shrinks this year by one percent, while a previous forecast projected half a percent. The forecast for next year by Nordea is growth of 0,8 percent and 2 percent for 2015.
The previous estimates for next year were 1,5% and for 2015 2,3% growth.
Nordea’s economist Pasi Sorjonen says, that the recovery of the Finnish economy is dependent on a rebound in exports. The domestic demand doesn’t feed economic growth, because the weakening of employment is slowing down domestic demand.
Nordea expects exports to pick up next year.
In its overview, Nordea writes about the employment developments that employment weakens until next Summer. Nordea forecasts a rise in unemployment to 8,4%.
An unemployment rate that increases to just over 8% nonetheless gives a too rosy picture of the situation according to Nordea: in the labour market a part of the unemployed is completely out of the work force – in other words: even though the number of unemployed grows, this doesn’t show in statistics.
In Nordea’s overview the Finnish government’s structural reform package is criticized as well. Nordea’s chief economist Aki Kangasharju says, that the structural reform package is not concrete enough to solve the problems of the Finnish economy.
“Too much depends on how smoothly the next steps in the preparations will be.” says Kangasharju.
I have an issue with the statement that the Finnish economy is so dependent on export picking up. I have shown this picture before, but it is still useful.
Source: OECD (series from 1999 to 2012)
There may be many ways to determine how important a sector is for economic growth (I am not an economist) but in the picture above, I don’t think you can say that domestic demand has not been a driver of economic growth, also not given this picture. It is quite possible, as the Bank of Finland has said, domestic demand is not anymore a major driver of economic growth (probably because of private households trying to repair their balance sheets, i.e. consumption is reduced). So Nordea has a large part of the decling growth covered, but perhaps gets it backwards – why is domestic demand/consumption declining? Shouldn’t the Finnish government do more to stimulate domestic demand rather than hope for a revival in exports?