Regardless of who wins Finland’s upcoming general elections April 19, the new government in Helsinki will be challenged with restarting economic growth and restoring the country’s regional and global competitiveness. This could involve introducing spending cuts, negotiating with unions for wage moderation and reforming the country's healthcare and pension systems.
Finland’s faltering economy is evidence that the eurozone’s economic malaise has spread beyond the Mediterranean and into Nordic Europe. In 2014, the Finnish economy contracted for the third consecutive year, and its 2015 growth prospects are modest. The European Union expects Finland to grow by only 0.8 percent this year, but Finland's Ministry of Finance recently admitted that growth could be even lower. According to Eurostat, unemployment in Finland reached 9.1 percent in February, below the eurozone average of 11.3 percent but considerably above Finland's pre-crisis level of 6.4 percent in 2008.
Though external factors have compounded Finland's difficulties, many of its problems are actually structural. When Finland's export-led technology industry was booming in the mid-2000s, wages in the private and public sector skyrocketed. According to Eurostat, Finland's average hourly labor cost was 32.3 euros ($34.41) in 2014, above the eurozone average of 29.2 euros and higher than those of Germany, Austria and Italy. In 2000, before the start of Finland's boom, the country's average hourly labor cost was below Germany's. This has already impacted trade; in 2011, Finland transitioned from running constant trade surpluses to running trade deficits.
Finland's finances are still relatively strong, but the country's fiscal deficit reached 3.2 percent of its GDP in 2014, meaning Helsinki had exceeded the EU's limit of 3 percent for the first time in almost two decades. According to Finland's Ministry of Finance, the deficit will not fall below the EU threshold until 2018.
Although Finland is experiencing minimal economic growth, it is not enough to meet its future needs. With the country's historically strong industries now in decline, it will be up to the new government in Helsinki to craft new, innovative policies that can create immediate and long-term prosperity.
