Finland no longer ‘sick man of Europe’ as economy grows

A scenic view in Helsinki, Finland.
Scanrail | iStock / 360 | Getty Images
A scenic view in Helsinki, Finland.

Finland has shaken off its "sick man of Europe" tag by recording six consecutive quarters of economic growth for the first time since the global financial crisis.

Economic growth in the first quarter was 1.2 per cent over the previous three months — the highest rate since the end of 2010 — and expanded 2.7 per cent year on year, faster than economies such as Germany and Sweden.

"We are recovering but we are not fully recovered yet. Finland is certainly not the sick man of Europe any more," said Alex Stubb, the former finance minister who used that description for his country in 2015.

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One of the most vocal advocates of austerity in the EU, Finland had been mired in recession for much of 2011-15, hit by a cocktail of problems from the decline of Nokia and the forestry industry to sanctions on neighbouring Russia and a rapidly ageing population.

But economists said the first-quarter growth was driven by strong exports that were aided by the weaker euro as well as solid contributions from private consumption and construction.

Still, they cautioned that Finland was one of the rare EU countries whose gross domestic product is still lower than its peak before the financial crisis. Pasi Sorjonen, chief analyst at Nordea Markets, said his bank had calculated that Finland needed to record annual growth of 1.8 per cent in each of 2016, 2017 and 2018 to reach the previous peak.

"We are coming from behind. There is a big gap that we must narrow first and then come past the others," he added.

Further challenges remain. The three-party coalition government has aimed to cut Finland's labour costs — which have risen faster than any other large EU country since the financial crisis — but still has to pass important healthcare and municipal reforms. Business people have privately expressed concerns about the pace of reform for much of the past decade.

"There is no need to take the foot off the accelerator. We have to continue with these reforms," said Mr Stubb, noting that the centre-right prime minister and finance minister were committed to them.

The coalition could be tested this summer when a leadership vote in the Eurosceptic True Finns could result in the party taking a more hardline approach in government to staunch its dramatic fall in opinion polls.

Mr Sorjonen said that the government should not be too self-congratulatory as the economy had been boosted by strong eurozone growth in countries such as Germany, and a weaker euro, which has helped manufacturing across the continent.

"I fear that with these nice numbers, more and more politicians will find themselves content and they will stop doing further reforms," he added.

Another issue could be in this autumn's wage negotiations. Labour unions are eager for pay increases after two years of freezes. The government has tried to deflect those calls, saying workers should wait until the recovery is more entrenched.

But Mr Sorjonen said he was "scared" about the wage talks. "The unions forget how far we lag behind [the rest of the eurozone]. They should remember this is just a first step — we need to continue at this pace for a long time," he added.