Finnish Economy Joins Euro Area in Recession on Investments

Finnish Economy Joins Euro Area in Recession on Investments
The city skyline is viewed from the Olympic stadium tower in Helsinki. Photographer: Ville Mannikko/Bloomberg

Finland’s economy unexpectedly joined the euro area in a recession in the third quarter as the region’s debt crisis weighed on business confidence and sapped investments.

Gross domestic product contracted 0.1 percent from the prior quarter, when it shrank 1.1 percent, Statistics Finland in Helsinki said on its website today. That missed the estimates of three economist surveyed by Bloomberg for growth of 0.2 percent to 0.4 percent. On an annual basis, GDP fell 1.2 percent.

“I’m afraid the final quarter is going to be even weaker,” said Pasi Kuoppamaeki, Helsinki-based chief economist at Danske Bank A/S. “It’s possible the trough will be in the first quarter.”

Finland’s economy is stalling as businesses cut investments amid concern over falling demand as the 17-nation euro area struggles to contain a debt crisis now in its fourth year. Investments fell 1.1 percent from the previous quarter, with construction spending dropping 1.4 percent, and machinery and equipment investments contracting 2.5 percent.

‘Very Challenging’

The slump in the northernmost euro economy comes as the government raises taxes and reins in spending to keep debt growth in check. The austerity is exacerbating a slump as companies such as Nokia Oyj, stainless steel-maker Rautaruukki Oyj and paper-machine manufacturer Metso Oyj have responded to declining demand with job cuts.

Prime Minister Jyrki Katainen told reporters today that the economic situation is “very challenging,” even as the government will stick to its austerity policies to keep borrowing costs from rising.

“Creating new growth is more challenging than usual,” he said today. “We can’t take risks at the expense of our public finances, as we must defend our credibility.”

The government has agreed on 2.3 billion euros of austerity measures next year, which will swell to 5.9 billion euros by 2016. The deficit will shrink to 1.2 percent of GDP in 2013 from 1.7 percent in 2012, the government said on Sept. 17.

The economy of the euro area shrank 0.1 percent in the third quarter after contracting 0.2 percent in the second, according to preliminary data. It had stagnated in the first three months of the year as growth eludes the single currency bloc. Growth is also slowing in Germany’s economy, Europe’s biggest.

Finnish exports grew 2.4 percent and consumer spending expanded 0.8 percent from the prior three months. The increase in exports is probably due to companies delivering old orders, Kuoppamaeki said.

“I’m surprised exports showed an increase,” he said. “Most statistical observations don’t support this. New orders are weak and exports are in a downward trend. Companies are probably working on older orders.”

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