Finnish economy update – more signs of weakness

Let’s look at Finland’s economy based on figures from September to November. All statistics are from Statistics Finland, Bank of Finland and Ministry of Finance.

The latest GDP figures show September posting an increase of 1.6 per cent – a figure hardly ideal for a supposedly healthy economy within the larger EU. This low growth has not been seen in a while, but the other data definitely confirms that things are getting worse. A negative print for one of the remaining months isn’t probably happening, but Finland might very well follow the EU into a recession sometime in the first half of next year absent some sort of miracle (one that seems to going on in US) or an exercise in extend-and-pretend policies.


The unemployment situation was steady in October with the seasonally adjusted rate coming in at 7.7 per cent matching last month’s figure. Seasonally adjusted employment rate was 68.7 per cent declining from last month’s 68.8 per cent.

The unadjusted figures are showing a monthly increase of 6k in unemployed while the annual improvement has been 9k. The figures from the ministry of employment and economy are showing a monthly increase of 2k from 224k the previous month.

Absent of total credit market shutdown and full blown recession, I think we are going to see small increases in unemployment over the next 6 months or so. Consumer confidence, retail sales and industrial production figures definitely do not support decreasing unemployment since Finland isn’t really a country with a very low structural unemployment.


Industrial output

The industrial production figures are showing clear weakness. The monthly decline came in at 1.3 per cent for September, which was clearly worse than what was expected. Moreover, new orders came in at 2.3 per cent increase year-over-year – the worst figure since the recession.

Manufacturing is up only 0.7 per cent from last year and while metal industry is down fine (that is if 2.5 per cent is fine), the other two legs Finland is standing on, forest industry and electronics are not doing so fine with the latter posting over 10 per cent decline from year ago levels.

Consumer confidence and retail sales

In November, the consumer confidence edged up slightly.  The indicator now stands at 1.5 while the all time lows were recorded at -6.5.

The next chart shows two of the components: expectations regarding Finland’s economy and the respondents’ own economy. Finns continue to have strong belief in their own economy despite the dismal view of the country’s economy, which I believe is due to social security nets that are in place.

From consumer confidence we go into retail sales. According to Statistics Finland, real retail sales expanded only 0.5 per cent from last year. On average between, January and October real retail sales have been going up by 2.8 per cent. So there has definitely been some slowing down – a development nicely in line with the dramatic drop in consumer confidence and with my expectations. I might add that holiday sales might not be that stellar this year considering that everything even close to previous year is usually considered a disaster.

It was also reported that inventories have increased 12.1 per cent over the last year at the end of September although nothing too extreme is happening on that front.

Consumer and producer prices

The consumer price index came in at steady 3.5 per cent for the month of October, down from 3.7 per cent the previous month, but way above the mythical 2 per cent but below target of the ECB. Here, I also continue to see gradual moderation absent of any insane moves from the ECB.  We are still pretty close to going into debt deflation. That said anything is possible as economies are now fully centrally planned by central banks.

Moreover, increase in producer prices was reported at 3.7 per cent for October.


Moving from consumer prices into housing prices, we have had few months of declines already, precisely as I expected I might add. Finnish housing prices came roaring back from the little financial crisis slump and have since made new highs month after month except now. While I don’t expect any massive declines even in a recession, the price declines are likely to continue as households have record amounts of debt, claims of ever increasing housing prices have been crushed and unemployment is flat at best. Moreover, a temporary benefit for new housing purchases will end this year and the administration’s political program did include curbing the interest tax deduction so there are some dark clouds ahead for housing prices. There is absolutely no need to buy at this stage.


As can be seen from the next chart, households continue to take new housing loans although I would expect to see some moderation as the falling prices reality hits mainstream. The chart starts from 2006.

In the next chart we can see that the loan portfolio of Finnish MFIs has been steadily increasing. The chart shows credit extended to households, corporations, public entities and financials plus the share of households on the right hand side. As a comparison, Finland’s GDP for 2010 was just above 180 billion euros.

And here we have the total lending by Finnish MFIs, insurance companies, Finnish government and social security funds for the 3rd quarter of the year to households (green) and others. According to Statistics Finland lending is up slightly sequentially to 278 billion euros but below Q1 figures. The ramp-up in the figures few quarters back is due to changes in methodology.


Firstly, here are the most recent estimates by the Finnish ministry of finance.

I’d say this is a little too optimistic forecast given the very weak state of EU. Nordics and Russia are doing OK, which might help with exports, but as can be seen from the 2009 figures, downturns hit Finland’s exports and investments pretty hard. Government expenditures are poised to increase and even though consumer confidence is particularly weak, private consumption will probably stay positive. Note that private consumption was down only 3.1 per cent in 2009 despite deep recession. A lot of indicators point to an OK economy with steady deterioration.

If Fed continues to “stimulate” the economy and ECB tries to do some stealth monetization through EFSF, IMF, ESM or any other acronym-monster, the GDP will probably stay positive.


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