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The following OECD assessment and recommendations summarise chapter 1 of the Economic Survey of Finland published on 7 April 2010.
The recession hit Finland hard and recovery is likely to be slow
While Finland was insulated from the direct effects of the recent global financial crisis due to its prudently managed financial sector, the worldwide recession and collapse in trade hit the country harder than most other OECD countries. Real GDP declined by over 9% from the peak in mid–2008 to the second quarter of 2009, led by declining export volumes which fell by close to one third. This extraordinary collapse in trade can to a large extent be attributed to the composition of Finnish exports, with a high dependence on information and communication technology (ICT) and capital goods, and exceptional exposure to hard hit markets such as Russia. Compared to other OECD economies, exports have also been slow to recover. Fast rising unit labour costs due to high wage increases and an appreciating effective exchange rate have deteriorated competitiveness over the last few years, potentially denting Finland’s export performance. The high wage increases boosted household income and sustained consumption through the downturn, but the negative effects on exports from lower competitiveness can weigh more heavily as the world economy rebounds. While underlying inflation in the past was lower than the Euro area average, it has been higher since mid–2008 despite a wide output gap.
Trade change during the downturn
Percentage change between 2008 Q2 and 2009 Q2
Source: OECD, OECD Economic Outlook database.
GDP has now stopped falling, and signs of a turnaround are emerging. A mild economic recovery is projected over the next two years on the back of low interest rates, a pickup in exports and ongoing fiscal stimulus. Growth in household consumption is likely to be muted as wage increases coming out of the current negotiations are likely to be moderate. Business investment is likely to remain restrained, reflecting uncertainty about the longer term outlook for exports. The recovery in housing investment may be more robust given significant underlying demand for housing, particularly in the Helsinki region.
Tertiary education reforms could boost potential growth
While the recent slowdown in productivity is largely cyclical, potential growth could be boosted in the longer term by reforms to tertiary education. Despite one of the highest densities of researchers and spending on research and development in the OECD, and an excellent performance in the pre–tertiary education sector, more could be done to improve the performance in the tertiary level and boosting innovation. Average tertiary study times are long and students benefit from grants and allowances that are both generous and virtually open–ended. Furthermore, the interface between the secondary and tertiary levels is inefficient. Many high school graduates are forced to wait extended periods before obtaining a place at a university due to entry exams, in addition to a standardised exit test at the secondary level. Long study times and the lack of labour market signals in the choice of subjects to study could be addressed with the introduction of tuition fees accompanied by a government loan scheme with repayment contingent upon post–graduation income. A more uniform entrance test or greater reliance on the secondary level exit exam could also shorten waiting times to enter university.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
The complete edition of the Economic Survey of Finland is available from:
For further information please contact the Finland Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Henrik Braconier and Petar Vujanovic under the supervision of Piritta Sorsa. Research assistance was provided by Isabelle Duong.