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Finland Cuts Economic Forecast as Russian Growth Pull Falters

Finland cut its economic growth forecast for 2014 to 0.5 percent from the 0.8 percent estimated in December as prospects of an export-driven recovery waver as sanctions are imposed on Russia.

“The single biggest driver of economic growth is foreign trade,” the Helsinki-based Finance Ministry said in a statement today. “Russia’s growth prospects are weak and depend quite heavily on natural resource extraction. In Russia there is also the possibility of continuing escalation of political uncertainty, which would affect the Finnish economy.”

Three years of recession in the past five years have eroded Finland’s public finances at the same as its export cornerstones, papermaking and technology, have struggled with competition and falling demand. General government debt will breach the 60 percent Maastricht treaty threshold next year, after reaching 59.8 percent in 2014, the ministry estimates.

The Nordic economy now faces more headwinds as Russia, the destination for about 10 percent of its exports, is seen slowing amid rising borrowing costs and sanctions from the U.S. and the European Union after President Vladimir Putin annexed Crimea last month. At least 25 economists surveyed by Bloomberg last week reduced their growth forecasts for Russia this year.

Devalued Ruble

Nokian Renkaat Oyj (NRE1V), the Nordic region’s largest tiremaker, cut its sales and operating profit outlook today, saying that the devalued ruble has hurt the purchasing power of Russian customers. Other companies, such as retailer Stockmann Oyj, have warned of similar concerns.

The government, led by Prime Minister Jyrki Katainen, has decided on austerity measures totaling 6.6 billion euros ($9.1 billion) by 2017 to protect its AAA rating. Its latest austerity package, hammered together last week, led to the 12-member Left Alliance party quitting the government in protest.

Finland’s gross domestic product will grow 1.4 percent next year, 1.8 percent in 2016 and 1.5 percent in 2017, according to the ministry. Unemployment will peak at 8.4 percent this year and drop to 8.3 percent in 2015, it said.

“Population aging coupled with the mismatch problems in the labor market may become a real obstacle to growth,” the ministry said. “Despite the recent positive trend in the global economy and the improved outlook in the domestic economy, risks in the outlook are still predominantly to the downside.”

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

To contact the editors responsible for this story: Kati Pohjanpalo at kpohjanpalo@bloomberg.net Jonas Bergman

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