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A Brief Presentation of the Economic Development in Finland

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A Brief Presentation of the Economic
Development in Finland
Director for Performance Audit Hannu Rajamäki
National Audit Office of Finland
Vilnius 10 June 2011
“The officials in the Finnish Ministry of Finance are constantly
worried about Finland running into debt. Using their graphs
and calculations, they know exactly how to make citizens
quake with fear at the terrible consequences of becoming too
heavily indebted. Listening to their gloomy predictions, you
might imagine that the out-of-control debt spiral has been a
particularly difficult problem in Finland for a long time. But it is
not quite like that – at least not yet.
In reality, Finland is a country that has constantly avoided
becoming too heavily indebted. …”
Dr. Sixten Korkman,
CEO, the Research Institute of the Finnish Economy, 2011
2
Recent economic development in Finland
3
2007-2009 crisis in Finland
- Finnish financial sector was insulated from the crisis
- Banking sector was in good condition
- Household debt increased but less than in many
other countries
- Long-term housing price development relatively
moderate (however, EU Commission warns about
relative overpricing of real estate)
- In contrast the global recession hit real economy
hard
- Worldwide collapse in trade
- Composition of Finnish exports (capital goods, ICT)
- Exports declined by 20,5 % in 2009
- In 2009 GDP declined by 8 %
- Biggest drop since 1918
4
GDP growth and level 1990-2012
--%
m. €
8
180000
6
160000
4
---
---
140000
2
120000
0
100000
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010*
2012*
-2
80000
-4
60000
-6
40000
-8
20000
-10
0
GDP grow th (year-to-year change)
GDP (in 2000 prices)
SOURCE: Statistics Finland, forecasts Ministry of Finance
5
Export led drop, indexed (2000=100)
160
150
140
130
120
110
100
90
2000
Exports
2001
2002
Private consumption
2003
2004
2005
Public consumption
2006
2007
Private investment
2008*
2009*
Public investment
SOURCE: Statistics Finland
6
Fiscal stimulus in Finland
- In response to the severe economic crisis the
government implemented a vast array of fiscal
stimulus measures
- According to the Ministry of Finance the stimulus
measures amount to 1,8 % of GDP in 2009 and 1,6
% in 2010 (in 2011 the expected effect of those
measures will be 0,5 %)
- Stimulus among the highest in the euro area as a
share of economic activity
- Stimulus measures include both tax cuts and
increased spending
7
Estimated stimulus measures in 2009
Tax cuts
m. €
Earned income
Pension income
Estate and gift tax
Employer's national pension contribution
VAT on food
Total
1360
225
155
440
80
2260
50 %
180
175
25
35
40
455
7%
8%
6%
16 %
3%
83 %
Increased spending
Construction
Infrastructure
Business subsidies
Labour policy and job training
Advancing funding from EU-programs
Total
Tax cuts and increased spending
As % of GDP
2715
1,54
6%
1%
1%
1%
17 %
100 %
Source: Confederation of Finnish Industries EK
8
Effects of fiscal stimulus
- Effects of various stimulus measures remains
to be analyzed
- In general, it seems that fiscal stimulus has
been appropriate
- Has supported employment and domestic
demand
- Due to sharp decline in GDP and significant
fiscal stimulus public fiscal stance has
weakened considerably
- Fiscal consolidation is a key challenge in the
coming years
9
Unemployment rate and employment rate 1990-2010
Unemployment rate (left)
Employment rate (right)
%
%
20
70
18
65
16
14
60
12
10
55
8
* *
6
4
50
45
2
0
40
1990
1991 1992 1993 1994
1995 1996
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012
SOURCE: Statistics Finland, forecasts Ministry of Finance
10
Financial stability map for Finland
Macroeconomy
Banks’ sustainability
Housing prices
dec 2009
dec 2010
may 2011
Risk premia
Indebtedness
11
Source: Bank of Finland
Fiscal stance, % of GDP
%
%
15
70
60
10
50
5
40
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010*
2012*
30
-5
20
-10
10
-15
0
Central government surplus
Government surplus
Government debt
SOURCE: Statistics Finland, forecasts Ministry of Finance
12
Slaloming in a crowded funding environment
- the year 2010 a year of rebounding economic activity but
shadowed by serious public debt crisis in Europe
- the 2009 recession was one of the deepest ever in Finnish
economic history
- Finland’s strong public finances deteroriated sharply in 2009
- in 2010 Finnish general government debt to 3,2 % GDP
пѓ first steps were taken towards stabilisation of public finances
пѓ in 2011 the policy of fiscal austerity will continue; general
government finances are improving (deficit about 1,3 % GDP)
- public debt will continue to rise: the figure will top EUR 100 billion
in 2012 (52 % GDP)
- in spite of recent development in the government deficit and an
increase in public debt the sovereign credit ratings on the
Republic of Finland are stable (long-term / AAA / Standard &
Poor’s)
- elections in April --- new parliament; new government ???
13
Central Government Debt of Finland, years 1995 – 2010
€ billions
%
14
Finland: Interest spreads to Germany
10 year
5 year
months: 4/ 2010 – 4/2011
15
NAOF:s audit activities 2010 - 2011
- Annual financial audits:
-
Ministry of Finance
State Treasury
- Annual audit of State’s Financial Statement
- Fiscal Policy, sustainability
- budget deficit, borrowing and lending operations
- reports on central government lending
- Annual follow-up of the Central Government’s Debt
Management Strategy and Operations
-
annual update of debt management strategy
risk management reports (monthly)
discussion with MoF / Money Market dep.
discussions with State Treasury, Director of Finance and Deputy
Director of Finance, Manager of Risk Management
- Performance Audits
- none 2010
- no audit plans for 2011 (except European Financial Stability Facility /
System)
16
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