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Finance Ministry predicts economic slowdown, presses for more structural reforms

The ministry says the next government should stimulate the economy, as annual growth is set to drop below 1.5 percent.

VM:n finanssineuvos Jukka Railavo (vas.), ylijohtaja Mikko Spolander ja finanssineuvos Marja Paavonen valtiovarainministeriön taloudellisen katsauksen julkistuksessa Helsingissä 4. huhtikuuta.
Senior advisers Jukka Railavo and Marja Paavonen flank the ministry's director general Mikko Spolander at the forecast release on 4 April. Image: Vesa Moilanen / Lehtikuva

Finland's ministry of finance has raised its forecast for the Finnish economy to 1.7 percent growth in 2019. The ministry said the growth will be sustained by domestic demand, as private consumption will continue to swell.

"A higher employment rate and accelerating growth in earnings will sustain the growth of disposable income. Modest inflation will contribute to continued rapid growth in real income," the forecast says.

Finance ministry employees nevertheless predict a slowdown in the next few years to an annual growth rate of less than 1.5 percent.

Finnish economic growth is held back by an international environment that the finance ministry describes as more challenging than in the past. By 2022-23, the ministry forecasts that economic growth in Finland will fall to under one percentage point.

Balanced books by 2020

The finance ministry predicts that the balance of general government finances will be restored at the turn of the decade, although central and local government will remain in deficit.

It forecasts that public finances will start to deteriorate again in the early 2020s, however, as consolidation measures come to an end and economic growth slows further.

"Finland’s economy is pushing forward in the wake of the economic upswing. Growth is slowing down and many see the signs of recession in the global economy. Conditions for strengthening public finances are demanding," says Mikko Spolander, director general of the ministry's economics department.

Civil servants at the ministry of finance said back in early February that the new government needs to either make two billion euros in cuts or raise taxes to ensure fiscal sustainability. At the 4 April release event for the forecast, Spolander said that these recommendations haven't changed.

75% employment would require more reforms

Finland's outgoing government set a goal to achieve a level of 72 percent employment, and now Finland's largest parties are making pre-election promises to pursue a 75 percent target. The finance ministry's forecast predicts that the employment rate will rise to 73.3 percent in 2023. If the next government wants added improvement, the ministry says it will require more structural reforms.

Finland's finance ministry releases an economic survey with projections for the coming economic climate four times a year. The last forecast is from December 2018, when the ministry predicted the Finnish economy would grow by 1.5 percent in 2019.

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