The pessimistic forecasters would be happy if the coming year proves them wrong.
What the closer we got to the end of last year, the more gloomy the predictions about the development of the Finnish economy for this year became.
Economists noted that the Ministry of Finance's forecasts over the past year were more positive than the views of many other forecasters. When the Bank of Finland told before Christmas, that in 2024 the Finnish economy will shrink, Ministry of Finance told on the same day that the economy grows. The difference was small in percentage units, but big in tones.
In the past, the Ministry of Finance was known for offering the most pessimistic views on the Finnish economy. The officials of the ministry strictly deny such an interpretation that the ministry would now generate optimism so that the government's economic program would have at least some chance of being realized and the current exceptionally good connection with the government would be maintained. According to the ministry, it operates guided by laws and good morals.
If the government wants to stick to its goals of stopping indebtedness and balancing the public finances, Finland needs economic growth – soon. Growth brings work and taxes to the common coffers. Downsizing takes work and money and makes saving even more difficult.
One the explanation for the Ministry of Finance's optimism comes from another forecasting institution. Its expert believes that the ministry believes too strongly that Finland and the Finns will quickly return to their old ways after the coronavirus pandemic recedes as inflation slows down and interest rates fall. The ministry assumes that when the crises are over, consumers will spend again as before and investors will refresh themselves.
According to a more critical interpretation, it might not turn out this well. Finland has changed, and the dent is slowly mending – and maybe never completely.
The pandemic changed the habits of consumers and the working methods of wage earners everywhere. The changes may remain long-term. According to the Bank of Finland, purchasing power is increasing, but at the same time the saving rate is rising.
The labor market about the change after the pandemic says that the employment rate increased until the end of last year, but the working hours did not. It is no longer fun to work the same number of hours. Part-time work is also attractive.
If this is a permanent behavioral change, the first element of economic growth, the amount of work, will not increase. The government has partly calculated its austerity contract on the fact that Finns can be hastened to work by changes in the laws concerning the labor market, and that 100,000 new jobs will increase the national product. The morality of the actions is also based on this idea: even if benefits are cut, the life of the victim will improve if he can be persuaded to raise his salary.
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The employment rate increased, working hours did not.
If cutting benefits is an action that leaks through behavioral changes, presumably no growth will occur. The employment rate is already falling.
According to some studies, another growth factor, productivity, has been affected by remote work. There's no need to tinker, and you don't have to go back to nearby jobs. The efficiency and innovativeness of the work community can also decrease when direct interaction decreases. Even though there are conflicting interpretations of the productivity of remote work, productivity growth in Finland is weak in any case, and the change will not come soon enough to accelerate growth in the next few years.
A dent The correction is also slowed down by the fact that Finland has also changed and may not return to the way it was before. Eas
tern Finland is slowly sinking as the supply ratio weakens, but the acute factor that accelerates the sinking is the fact that the Russian border was closed. In the East, there will probably never be a return to former consumption. At least not this year. The change came quickly.
The ministry also believes that investors will soon get excited again and help the economy grow. The proximity of Russia may not scare investors, but Finland has suddenly become more and more clearly a country on the edge of Europe in the global upheaval. On top of all that, Finland is losing in the rapidly accelerating competition for state aid, which started with huge investments in the green transition. Investors do not rush to the borderland of small subsidies.
I predict, that all forecasters would be satisfied if the year that has begun proves that the Ministry of Finance was right. That it would just be a pretty bad year.
The author is the editor-in-chief of HS.
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