Both Finland’s Central Bank and Finance Ministry have recently released updated forecasts for the next two years. The news isn’t great. In case you don’t understand subtlety, the Central Bank’s headlined their press release: Finland’s economic boom is over. A quote:
Finland’s economic boom is over and growth is temporarily losing momentum amid weaker global economic activity.
Will Finland’s economy crash? No. Even if finding a job in Finland will be more difficult than usual, these regular periods of slower growth and greater pressure on government finances tend to foster innovation and creativity. Instead of running to the hills maybe it’s time to look for an affordable investment opportunity? Of course, that’s if you can keep the cash coming in to pay your rent and buy food…
We’ll get into the details below. First, a little history on Finland’s economy.
Poor to rich
For most of the 1900s, Finland was a relatively poor country. Finland declared its independence in 1917. The following year, 1918, Finland had its own civil war. After that, Finland was a pretty stable, yet poor country until the Soviet Union attacked Finland in 1939. Finland fought two wars against the Soviet Union, the Winter War and the Continuation War. In 1945, after Finland had lost some of its Eastern parts to Soviet Union, the Continuation War ended.
Part of the peace treaty deal between Finland and the Soviet Union was that Finland had to pay war reparations to the Soviet Union. Finland managed to pay its reparations to Soviet Union on time which helped the development of various industries in Finland. Since the WW2, the economy of Finland has been growing quite steadily. According to the following statistic graph (from Tilastokeskus- Statistics Finland), the gross domestic product (GDP) of Finland has been growing steadily for the past decades.
However, there has been two major recessions during the last 50 years; the first one happened in the early 1990s and the second recession occurred after the Great Recession in 2008. Even though the Great Recession started in the United States, Finland, among other countries, suffered badly because of it.
Finland’s economy 2020 – 2022: Growth will slow
For the last 10 years, Finland has suffered economic challenges. After the Great Depression, a European Debt Crisis followed. It peaked between the years 2010 and 2012. Both of these crises affected Finland. Since 2009, Finland has had four different years when its gross domestic product (GDP) has declined: 2009 and 2012-2014. The highest growth in GDP occurred in 2016 (2.6%) and 2017 (3.1%).
However, the party doesn’t seem to last very long in Finland. The Bank of Finland forecast for Finnish GDP growth is less than 1% next year:
- 1.3% – 2019
- 0.9% – 2020
- 1.1% – 2021
- 1.3% – 2022
The Finance Ministry has a slightly different forecast, but basically the numbers show a consensus.
- 1.6% – 2019
- 1% -2020
- 1.1% 2021
- 1.2% 2022
It is always hard to predict the future, especially when there are so many uncertainties and factors that determine the global economy trend. As a small fish in the sea, Finland’s economy is prone to various global economic threats and risks. Finns have always relied on their export sectors which is also the reason why the Finnish economy goes hand in hand, up or down, with the global economy.
So want to know how the Finnish economy is going to do? Look at the global economic outlook.
Aging population & adventurous young professionals: Challenging mix
Finland will be facing many challenges in the future. One of the biggest challenge for Finland’s economy is the fact that our population is aging fast. After the WW2 in 1945-1955, there was a baby boom in Finland (and across Europe) and many children were born in that time period. In Finland, we call these people “the great generations” (baby boomers). These people are already retired or just retiring now. That means that there are lots of older people who need support and care.
While Finland is aging fast, the total fertility rate (TFR) per average woman reached a record low numbers in 2018 (1,41). It is hard to figure out all of the reasons why the average fertility rate per woman has declined in Finland during the past 10 years, but it will sure has its effects. As if it was not enough, more and more talented young professionals are moving abroad from Finland. There are many reasons for that, such as wanting to experience different cultures or pay less taxes. Luckily, professionals from other countries also come to Finland to work.
In order to keep Finland’s economy and welfare state strong and stable, we definitely need more workers here in Finland. There is great talent shortage especially in the tech and IT field, but we need workers in all kind of field (such as elderly care). There are just not enough young Finns anymore which is why we have to rely on foreign labor.
Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.
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