Economic experts warn of hard times ahead

Finnish economic experts are split into two camps in their predictions on economic trends in the near future. Sixten Korkman, managing director of the Research Institute of the Finnish Economy (ETLA) and Pasi Holm, the head of Pellervo Economic Research predict that the economy will experience negative growth.

Meanwhile, Seija Ilmakunnas, head of the Labour Institute for Economic Research, and Juhana Vartiainen, head of research at Sweden’s National Institute of Economic Research, expect slight economic growth in 2012.

     

The European Commission expects Finland to reach 1.4 per cent growth, whereas the average growth for all countries in the eurozone is forecast at 0.5 per cent. The forecast is based on information that was available before the crises in Greece Italy flared up.

Some experts actually expect the spring to bring new life to the economy, but the growth will be significantly weaker than the Finnish government had previously assumed.

     

The first signs of crisis consciousness are already apparent. The economic journal Talouselämä wrote on Thursday that the Ministry of Finance has urged other ministries to prepare for further cuts in the upcoming framework talks.

“We are currently drawing up various contingency plans, because nobody knows what the economy will look like a month from now”, said Minister of Finance Jutta Urpilainen (SDP).

The framework for state finances for 2013-2015 will be set in March.

     

Prime Minister Jyrki Katainen (Nat. Coalition Party), Finance Minister Urpilainen, and all economic experts interviewed by Helsingin Sanomat agree that the government should not take fright and should not start scaring Finns with upcoming cost cutting measures.

The top ministers in the government insist that heads are cool. No further cost cuts are coming until the late winter.

Urpilainen says that the framework talks in March will be the right time and place to assess whether or not additional measures are needed.

     

Korkman and the other economic experts expect the government to take action in the spring to institute extensive structural changes.

“Working careers need to be extended and the retirement age must be raised for the employment level to rise and for the tax base to grow stronger”, Korkman says.

Vartiainen agrees, adding that Finland needs to recruit more labour from abroad.

     

Pasi Holm sees a need for extensive changes in the government’s policy programme. “The programme is based on an assumption of 2.5 to 3 per cent annual growth, which is not going to happen.”

Seija Ilmakunnas wants to see the framework agreement for the labour market to be put into shape. “After that we need to implement the municipal and service structure reforms. They will bring savings.”

     

Katainen and Urpilainen also emphasise the importance of the municipal reform.

The government programme includes a statement according to which state indebtedness needs to be reduced by 2015.

The way things look now Korkman does not expect this to happen because the economy will be shrinking and unemployment might rise.

     

Sixten Korkman is also worried about a “self-detonating trap” that he says lies hidden in the government programme.

The government has promised to cut spending and raise taxes if the debt does not go down.

“Therefore, the government must deepen the recession by tightening financial policy”, Korkman laments. 

HELSINGIN SANOMAT

INTERNATIONAL EDITION - BUSINESS & FINANCE

http://www.hs.fi/english/article/Economic+experts+warn+of+hard+times+ahead/1135269845729