Finland Battered by Real Job Cuts as Crisis Ages: Nordic Credit
Finnish companies are wielding their job axes as the northernmost euro country braces for a new era of sluggish growth with Europe’s debt crisis entering its fourth year.
As companies such as former mobile-phone bellwether Nokia Oyj (NOK1V) succumb to waning demand and competition, outright firings are running neck-and-neck with the more traditional Finnish method of temporary layoffs. Back in 2009, when the current crisis erupted, temporary measures outnumbered dismissals by about six to one, according to data from central labor market organization SAK.
“There’s a clear change in the behavior of companies,” Hannu Kaseva, an economist at Helsinki-based ETLA research institute said by phone. “They estimate that it’s not temporary anymore and we’re facing a more permanent period of weakening.”
Finland is reeling as Nokia, once Europe’s most-valuable company, in June announced 10,000 job cuts and as other industries, such as its papermakers, also reduce jobs to cope with stalling exports. The government is raising taxes and cutting spending to trim deficits in one of the four remaining AAA rated nations in the 17-nation euro bloc.
Unemployment will rise to 8.1 percent next year, the Labor Ministry said on Oct. 23. A total of 12,509 jobs have been cut this year, compared with 19,658 in 2009, when the economy shrank 8.5 percent, SAK data shows, based on publicly available information. The $245 billion economy will expand 1 percent both this year and next, the government estimated on Sept. 17.
According to Labor Minister Lauri Ihalainen, job losses are piling up as companies are more “trigger happy” and because the “exporting cornerstones” are in the midst of structural changes. The government’s goal of pushing the jobless rate down to 5 percent by 2015 is at risk.
“It’s a tough goal and with these growth figures we won’t get to it,” Ihalainen said in an Oct. 23 interview. “We’re living with years of slower-than-usual growth.”
Gross domestic product shrank 1.1 percent in the second quarter from the three months through March, the worst slump in since 2009. Exports sank 2.3 percent and household spending slid 2.2 percent, the statistics office said on Sept. 5.
Between 1984 and 1990, Finnish unemployment had averaged 5 percent, compared with 12.3 percent in the decade that followed, peaking close to 20 percent in 1994. Since joining the euro, joblessness has averaged 8.3 percent, according to calculations based on Statistics Finland data.
“The previous recession was preceded by a relatively long period of profitability,” Simo Pinomaa, an economist at the Confederation of Finnish industries said by phone. “There’s a danger that when buffers have been consumed, companies are forced to act.”
Standard & Poor’s last month said that Finland’s top rating may be under pressure as the country also has to cope with Europe’s fastest-aging population. The rating company, which has placed Finland on negative outlook, said that “vulnerability to external factors” and weak domestic demand are “complicated by longer-term structural issues.”
The pain of Finnish workers may also endanger the country’s status as a safe harbor from euro region’s crisis.
The yield on Finland’s benchmark 10-year note rose three basis points to 1.83 percent as of 1:52 p.m. in Helsinki. The difference in yield between Finland’s 2022 bond and similar- maturity German bunds was at 22 basis points, widening from as low as nine basis points at the start of last month.
The European Central Bank and the International Monetary Fund have both cut forecasts for the euro-area economy over the past 1 1/2 months as governments lower spending to plug budget gaps, eroding consumer and export demand. Business confidence in Germany, Europe’s biggest economy, unexpectedly fell to a 2 1/2- year low this month, a report yesterday showed.
Finnish companies that recently started cutting jobs include stainless steelmaker Rautaruukki Oyj, which said on Sept. 27 it will terminate 250 positions. Stora Enso Oyj (STEAV), Europe’s biggest papermaker, announced 520 cuts on Oct. 23 at mills in Finland, Sweden and Poland, while metal component maker Componenta Oyj (CTH1V) announced plans to cut 550 jobs on Oct. 18, of which about 20 percent will be in Finland. Metso Oyj (MEO1V), a machinery supplier for mining and paper industries, has said it will eliminate as many as 630 jobs in its paper unit.
Banks are also feeling the pinch with OP-Pohjola Group cutting as many as 700 jobs in Finland, it said on Sept. 19.
Dismissals have become more commonplace even as the government agreed a year ago to pay part of the costs during a temporary layoff.
“This was our message that the economic burden for companies is lighter now than before, we’re trying to encourage temporary measures,” Ihalainen said. “I wish to be optimistic about Finland; the forest industry has many new interesting possibilities, the technology industry as well. Our exports don’t end here, there’s just a major transformation going on.”
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