The International Monetary Fund said Finland’s status as a highly ranked developed nation belies a number of failings that threaten to condemn the economy to years of slow growth if not addressed.
“When we look at international rankings, Finland is doing very well on average, but it’s not doing necessarily very well on every specific element,” David Hofman, IMF mission chief for Finland, said in an interview. “A good overall ranking is not enough” and “doesn’t necessarily pertain to elements like starting a business or getting credit that are important.”
After three years of economic contraction, Finns in April rejected a coalition led by Prime Minister Alexander Stubb and threw their support behind Juha Sipila, a self-made millionaire promising to deliver business-driven growth. Hofman said the next administration probably won’t have much leeway to use stimulus to support demand, and that the path to recovery must now be based on altering the basic framework of the economy.
“Structural reform” has emerged as “the main lever that the authorities have to boost growth in Finland,” Hofman said. “Without such reforms” and their “solid implementation,” growth “may remain slow for a longer period.” Room to maneuver in fiscal policy “is reaching its end now,” he said.
Finland’s economy will grow just 0.3 percent this year, one-fifth the pace of the euro area’s average and even trailing behind the 0.5 percent estimated growth in Greece, the European Commission said on Tuesday.
Since the global financial crisis, salaries in Finland have outpaced those in Germany and Sweden by as much as 20 percent. The lack of wage competitiveness will drive Finnish unemployment to 8.9 percent this year, the highest level in the Nordic region, according to the Economy Ministry.
Businesses that at one time propelled the economy forward have long since buckled under the weight of international competition. A consumer electronics industry once led by Nokia Oyj no longer exists, while paper makers who used to be key to sustaining Finnish export growth are fading into obscurity.
Finland’s international rankings don’t fully reflect its economic challenges, according to the IMF. The country was fourth in a 2014-15 World Economic Forum index of 144 nations ordered according to structural competitiveness, including factors such as lack of corruption, research and development spending and quality of education. In other surveys, Finland performs less well. A competitiveness report by the International Institute for Management Development, IMD, ranks the country 18th of 60, behind its Scandinavian peers.
Sipila has signaled he’s aware of the challenges ahead but warns any solution will take as long as a decade. Fixing Finland’s wage gap alone will be a 10-year project, he says.
“Our success in international competitiveness rankings doesn’t translate into competitiveness of companies,” Sipila said in an interview in Helsinki on April 25. “Finnish international companies do well, but the work isn’t done in Finland anymore.”