Sampo Bank: Finland is entering into recession

Sampo Bank estimates that Finland’s economy has sunk into recession. GNP is likely to decline during the current quarter and it will continue to do so until next summer.


A country is said to be in recession if its GNP decreases in two consecutive quarters.
“The bottom will be hit next summer. After that there is a small chance for a slight growth. Still, it pays to take into consideration that longer predictions are based on many uncertain assumptions”, says Sampo Bank leading advisor Lauri Uotila.


The sector worst hit by the eurozone debt crisis is the exports industry. Finland’s exporting has already diminished clearly.


Growth in the construction industry has ground to a halt, but the field of retail and wholesale trade is still growing in the country.
The level of unemployment Uotila expects to remain put at around eight per cent. The number of those employed will reduce somewhat through people entering into retirement.
“There is no reason why consumer demand could not stay high. Salaries and pensions keep rising and almost everybody is able to keep their jobs”, Uotila adds.
      
The Sampo Bank prediction is based on the assumption that the eurozone will clear its debt crisis through slow adjustments and without a fully-blown financial crisis, which would be caused for example by the collapse of a major European bank.


Chief Economist Pasi Kuoppamäki does not believe that the euro will collapse. He expects that the agreed measures, such as the strengthening of the role of the International Monetary Fund (IMF) and next spring’s setting up of the European Stability Mechanism (ESM), will be enough to balance the situation. “Even if Italy had to pay a slightly higher interest until then for its financing, this is not a huge issue for its national economy. Investors will still be found interested in investing in Italian bonds.”
      
For those with mortgages 2012 will be “relatively easy time”, Uotila says. Interest rates on loans are likely to drop below the inflation rate, which means a negative real interest rate. In other words, the inflation will reduce the loan capital spontaneously. Salaries will grow by about three per cent on average. Uotila does not believe the housing prices will start tumbling.


“The nominal prices may be reduced a little bit, but in real terms the prices will remain the same. Even if debts are record-high in relation to the available income, the loan servicing costs are very low”, Uotila concludes.


Source: HELSINGIN SANOMAT - INTERNATIONAL EDITION - BUSINESS & FINANCE