Recession Besets AAA Finland as Crisis Kills Jobs: Nordic Credit
Finland’s job losses and export slump are driving the AAA rated nation into a recession as growth in its European trade partners evaporates.
The economy of one of only four-remaining top-rated euro members contracted in August for the first time since February 2010, as companies fire workers in response to shrinking export markets.
“Growth has been extinguished in Europe,” Roger Wessman, Helsinki-based chief economist at Nordea Bank AB, said by phone yesterday. “The weakness in the Finnish economy is a result of its export markets. It looks very likely Finland is in a recession.”
The specter of a Finnish recession comes as European Central Bank President Mario Draghi warns that recent data suggest even Germany -- the 17-member currency bloc’s biggest economy -- is struggling to escape the region’s debt turmoil. Eleven economies in the 27-member European Union will shrink this year for a region-wide contraction of 0.3 percent, the European Commission said yesterday.
The crisis in the euro zone has brought Finnish industry to its knees. Companies including stainless steel-maker Rautaruukki Oyj (RTRKS) and paper-machine manufacturer Metso Oyj (MEO1V) have responded to declining exports with job cuts, undermining confidence in the Nordic economy. Technology, one of Finland’s main industries, isn’t faring any better as Nokia Oyj (NOK1V) loses market share to Samsung Electronics Co. Ltd. and Apple Inc.
Finland’s gross domestic product shrank 0.6 percent in August from a year earlier, the most since February 2010, a trend indicator showed yesterday. In the second quarter, GDP contracted 1.1 percent from the prior three months, the statistics agency estimates. The data are calculated differently.
Finnish exports fell an annual 8 percent in September, with sales to the European Union plunging 14 percent, the customs office said yesterday. New orders for the technology industry have contracted for five consecutive quarters.
Companies interested in buying Finland’s investment goods have struggled to obtain funding, said Jorma Turunen, chief executive officer of the Federation of Finnish Technology Industries, whose members produce 60 percent of the country’s exports and employ a quarter of its workforce.
“Europe is in recession, the market just isn’t there,” Turunen said in a phone interview. “Visibility is limited.”
New orders received by Finland’s technology industry plummeted an annual 20 percent last quarter and 14 percent from the prior three-month period, presaging a slump in exports, according to the federation. The value of order books was 10 percent lower at the end of September than a year ago.
The technology industry, which includes metals and machinery, hasn’t recovered from the 2008 drop in sales that caused Finland’s economy to shrink 8.5 percent in 2009. Exports of mobile phones from the country ended in July, according to the industry group.
The government needs to do more to ease the pressure mounting on Finland’s manufacturers, Turunen at the technology industry group said.
“Finnish industry is running hurdles, only its hurdles are higher than for other countries,” Turunen said. “Our competitors are passing us by left, right and center.”
Finland’s deteriorating economic outlook is increasing the nation’s debt burden, relative to GDP. Public debt will swell to 54.7 percent of GDP next year, compared with 33.9 percent in 2008, the European Commission said yesterday.
Finland’s 10-year benchmark bond yields have risen 34 basis points from a euro-era low of 1.33 percent on Aug. 2, to 1.67 percent yesterday. The spread to similar-maturity German yields widened to 28 basis points during the period.
Still, Finland’s debt dynamics will continue to outperform those of the euro zone’s southern members, meaning the Nordic nation’s yield spread to Germany is unlikely to widen much more, according to Jussi Hiljanen, the head of fixed-income research at SEB AB in Stockholm.
“International investors and credit-rating companies see Finnish economic fundamentals as very good,” Hiljanen said. “It’s one of the rare AAA countries, which makes it a haven investment.”
The yield on Finland’s 1.625 percent note due September 2022 eased about two basis points 1.66 percent as of 11:41 a.m. local time. The yield on the two-year note was minus 0.010 percent.
Five-year credit default swaps on Finland rose one basis point to 30 basis points, versus 32 basis points on German debt, according to data available on Bloomberg.
Finland’s economy will grow 0.1 percent this year, the weakest expansion rate in the Nordic region, according to the European Commission. It had previously projected growth of 0.8 percent in 2012. The Commission also cut its estimate for next year’s expansion to 0.8 percent from 1.6 percent.
Finnish policy makers, shielded from market forces by the government’s AAA credit rating, are trying to reduce debt instead of boosting demand in the economy. In neighboring Sweden, which isn’t a euro member, the government presented a stimulus budget to jump-start the biggest Nordic economy.
“The only sustainable solution to boosting growth is to improve the competitiveness of exporters,” Wessman at Nordea said.
Prime Minister Jyrki Katainen’s government has said it will review the need for new budget cuts and tax increases in March, when it debates the spending framework through 2017. The six- party coalition, which took two months to form after the April 2011 general elections, is split on how to balance the budget.
The government is borrowing 9.2 billion euros ($11.7 billion) this year to fund the gap between revenue and expenditure, as Finance Minister Jutta Urpilainen presents “optimistic” forecasts for the economy, Turunen said.
“Unfortunately the government is missing the big picture, it lacks a plan to boost growth and investments,” he said.
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