Finnish Government Cuts 2009 Economic Outlook, Sees 2010 Growth

Finland’s government lowered its forecast for the northern-most euro member’s economy and now expects a deeper recession as shrinking export markets force unemployment higher and erode consumer demand.

The economy will contract 6 percent this year, the Finance Ministry said at a press briefing in Helsinki today. It had forecast a drop of 5 percent for 2009 on March 24. The projection for next year was raised to a 0.3 percent expansion from a 1.4 percent drop expected in March. The country will run a central government deficit equivalent to 3.8 percent of gross domestic product this year and 5.7 percent in 2010, it said.

“Saving the welfare state is the central goal,” Finance Minister Jyrki Katainen said at the briefing. “Our growing debt is for stimulus. That doesn’t mean we will enter a debt spiral. We have to ensure we can repay our debt.”

Finland’s exports have faltered, slumping 26 percent last quarter and forcing companies that rely on sales abroad to cut jobs. Gross domestic product has contracted for four consecutive quarters and industries that got by when global markets were growing now struggle to stay afloat.

“It’s clear that 2009 will be an exceptionally bad year,” Kari Jalas, Managing Director of the Finnish Chamber of Commerce, said in Helsinki today. “The financial crisis has brought to light all the weaknesses in the economy and sped up the negative developments.”

Government debt will rise to 64.4 billion euros ($89.3 billion) this year and 77.2 billion in 2010, the ministry said. The government will fund 20 percent of all expenditure through debt sales, with the funding ratio rising to 25 percent in 2010, Katainen said.

Forestry Decline

Finland’s forest industry, led by Europe’s two biggest papermakers Stora Enso Oyj (STERV) and UPM-Kymmene Oyj (UPM1V), was shuttering pulp and paper mills and cutting jobs before the recession began in the second quarter of last year to boost profitability after the prices of its products declined since 2001 and output costs rose. The price of newsprint in Europe has fallen 15 percent to 519 euros ($722) per ton in the eight years since June 2001.

The crisis has worsened the employment situation and caused more than 3,100 pulp and paper workers to be temporarily sent home to wait for demand to pick up, data published on May 15 by the Employment Ministry shows.

The jobless rate will rise to 9 percent in 2009 and 10 percent in 2010, the Ministry projects, from 6.4 percent last year.

Finland’s main markets Sweden, Germany, the U.K. and Russia are all in recession, giving little hope that exports will recover soon. Still, Germany, the euro region’s biggest economy, may see its recession bottom out after an investor confidence index rose to 44.8 in June, the highest in three years, from 31.1 in May, the ZEW Center for European Economic Research in Mannheim said today.

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Chris Kirkham at ckirkham@bloomberg.net

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