Globalisation, which once had a significant beneficial impact on the Finnish economy, is now in a transitional stage, and Finland’s position is no exception, as there is growing evidence that the country has begun to lag behind in terms of investment attractiveness, education, competencies and labour resources, Azam Muradov writes.
International practice shows that global economic factors play a decisive role in shaping the well-being of national economies. In this context, we turn to the experience of Finland, which now is faced with numerous challenges and unfavourable trends in its economic policy.
Despite all its previous achievements and innovative potential, the Finnish economy is currently beset by a number of serious structural problems, including a decline in production and a slowdown in economic growth, significant consumer and industrial inflation, high unemployment, a shortage of skilled labour, a chronic budget deficit with a rising public debt, a negative trade balance, and a decline in foreign trade, especially with Russia, which had been one of Finland’s most important trade and economic partners for decades.
The starting point is the fact that previously, under the government led by Sanna Marin (SDP) in 2019–2023, the state budget deficit in 2022 reached a record 18.6 billion euros (0.8% of GDP). According to estimates issued by the Ministry of Finance of Finland, this year it will increase to 2.4%, and in 2024 – to 3.2% of GDP. The ratio between the country’s total public debt and its GDP has increased from 59.5% in 2019 to 73.3% (196.9 billion euros) at the end of 2022. State expenditures on interest payments on public debt in 2023 will grow to 2.6 billion euros (+209.5% y/y). Average annual inflation increased from 1% in 2019 to a historic high of 7.1% in 2022, for the first time since 1984.
Although the average employment rate increased by 3%, its growth was driven by an increase in the number of part-time workers, which means that overall labour productivity, or the number of worked hours, did not increase.
Against this background, on June 20, 2023, under the slogans of achieving balance in the economy and the optimisation of public spending, a new government coalition under the leadership of Petteri Orpo (NCP), came to power. It included representatives of the National Coalition Party, the True Finns, the Swedish People’s Party and the Christian Democrats. One of the key provisions of the new government programme was to stabilise the national economy, which entailed a significant reduction in government spending (about 4 billion euros) during the new cabinet’s tenure, as well as a number of structural measures that will allow Finland to achieve positive effect in the revenue of government finances, approximately another 2 billion euros.
By the end of 2022, the national GDP of Finland had reached 268.7 billion euros; the growth rate of the gross domestic product was 2.1%. At the same time, already in autumn, the quarterly indicators of the national economy began to reveal a negative trend, which continues to this day. Because of current processes in the global economy, in Finnish industry and services, as well as taking into account the changes in fiscal policy after the parliamentary elections, all leading experts (the Ministry of Finance of Finland, Bank of Finland, ETLA Economic Research Institute, and the European Commission) are unanimous in their assessments and believe that in 2023, we should expect stagnation or even decline in the Finnish economy. The Ministry of Finance and the Bank of Finland expect a fall of 0,5% and 0.2% in 2023 and in 2024, respectively.