Finland and Their Economic and Political State

Finland’s economy will slow somewhat in 2018. Improvements in competitiveness help to boost investment and support the growth of exports. Business investment will strengthen in 2018 thanks to the launch of major industrial projects (in energy, forestry and metals). Private final consumption remains subdued and public spending will ease. Growth of real GDP will slip to about 1.6% per year in the medium term.

Political Structure

Finland has a semi-executive president who exercises extensive political powers even though the main executive functions are vested with the prime minister. Elected by universal suffrage for a six-year term, the president may appoint any prime minister and cabinet which can secure the approval of the 200-member Eduskunta (Parliament). Members of parliament are also elected for four-year terms. In January 1995, Finland became a full member of the EU.

Population ageing in Finland will occur sooner and more rapidly than in most OECD countries. The country may soon be caught between the rising costs of pensions and healthcare and global competition in an increasing number of industries. Recent pension reforms have brought some relief but more reforms will be necessary.

Population

Finland’s total population was 5.5 million in 2017, an increase of 335,000 since 2000. The number of inhabitants will continue to rise at a slow but steady pace in the medium term.

The rate of population ageing is among the most rapid in Europe. The median age was 42.5 years in 2017 – 3.3 years higher than the figure for 2000. The number of people over 65 doubled in 1980-2017. This group represented 20.9% of total population in 2017 and by 2030 they will account for 25.5% of total population.

Income growth could decelerate over the next 25 years owing to the ageing process. The population of working age could begin to fall early in the next decade.

Finland population in 2017 and 2030. Males vs. Females.

Energy

Finland relies almost totally on imports of oil and gas, which it once obtained from the Soviet Union. Plans for a substantial expansion of Finnish gas drilling projects in Russia have been considered but never implemented. Nuclear energy accounts for about a sixth of the country’s total energy needs. A new nuclear power plant financed by Russia is scheduled to come on line in 2019.

Finland’s energy efficiency (defined as GDP per tonne of energy consumed) was only about two-thirds of the regional average in 2017. Energy efficiency grew at an average rate of 1.5% per year in 2012-2017.

Economic Structure and Major Industries

Agriculture accounts for only a small portion of GDP and employs 3.8% of the workforce. Many small farms are being consolidated and reorganised. This structural change is driven by greater investment in agriculture. Forestry, an important export earner, provides a secondary occupation for a large portion of the rural population.

The manufacturing sector makes up 16.3% of GDP and employs 13.9% of the workforce. Finland claims around a third of Western Europe’s total capacity in the forestry industry and is the world’s second largest exporter of paper products behind Canada. The electronics industry is dominated by Nokia but the firm’s global mobile phone business has collapsed and it plans to cut 1,300 jobs by 2018. Altogether, the slump in mechanical engineering, electronics and paper has cost more than 90,000 jobs. The chemical, construction and metal industries have been more resilient, but cannot make up for these losses.

Tourism is an underdeveloped part of the service sector. Tourist activities account for approximately 8.2% of total employment. The real value of tourist receipts rose by 3.0% in 2017 and growth of 2.1% is expected in 2018. The government hopes to channel more resources into tourism with the goal of developing a year-round appeal. Russians have been the largest tourist group but their number fell when the Russian economy weakened. Finland’s banking industry remains profitable. Nordea, the largest bank in the Nordic region, plans to move its headquarters to Helsinki in 2018.

Economic Prospects

Finland’s recovery will slow in 2018. Real GDP grew by 3.0% in 2017 and gains of 2.3% are expected in 2018. Improvements in competitiveness help to boost investment and support the growth of exports. Business investment will strengthen in 2018 thanks to the launch of major industrial projects (in energy, forestry and metals). Private final consumption remains subdued and public spending will ease. GDP rose by 0.4% (year-on-year) in the third quarter of 2017.

Prices rose by 0.8% in 2017 and inflation of 1.2% is expected in 2018. Monetary policy will continue to be very accommodative.

The real value of private final consumption rose by 2.0% in 2017 and an increase of 1.7% is forecast for 2018. Low interest rates and a benign rate of inflation help consumers. The recent wage freeze and the high level of household indebtedness are constraints.

Unemployment was 8.6% in 2017 and it will dip to 8.3% in 2018. A Competiveness Pact signed in 2016 appears to be reversing the recent deterioration in cost-competitiveness. A countrywide wage freeze was agreed in 2017. Wage growth was flat in 2017 and will rise only moderately over the next couple of years. The decline in the working-age population is a longer-term problem.