Finland's economic transition still incomplete
According to a statement issued last week by the Governing Council of the ECB, the outlook for euro area growth will remain more or less unchanged compared with the September 2019 ECB staff macroeconomic projections, owing to global economic uncertainties. The rate of euro area inflation remains below the target level for price stability. The monetary policy stance remains accommodative, which supports our pursuit of price stability and fosters conditions that are favourable to growth and employment in the euro area.
‘The Finnish economy is still going through a period of transition in which it has to adjust to two large structural realignments. One of these concerns the ageing population. The other comprises the shocks to the economy suffered since 2007, from which we have not yet fully recovered,’ said Bank of Finland Governor Olli Rehn at the press briefing for the online publication of the new issue of the journal Euro & talous. ‘Governments and social partners have in recent years agreed several important solutions to address the problems. More determined action should, however, be taken to strengthen the public finances and the prerequisites for employment,’ stated Governor Rehn.
The Bank of Finland estimates that the long-term general government sustainability gap is larger than posited in the previous estimate, published in December 2018. The sustainability gap is largely explained by population ageing, and the estimate for it is now gloomier, due to the weaker outlook for the immediate years ahead. ‘For the long-term outlook for the public finances, the aim of raising the employment rate to 75% over the next few years is well-justified. Beyond this, we should aim even higher, to reach a good Nordic level,’ commented Governor Rehn.
The prerequisites for higher employment should be improved by a variety of measures all pulling in the same direction. When selecting these measures, it is important to draw on the knowledge provided by both research and international experience. There is an important role for structural reforms that increase the supply of labour, as well as improvements in cost-competitiveness and efforts to reduce labour market mismatch.
In the past ten years, labour productivity growth in Finland has been weak. In efforts to improve the conditions for productivity growth, a key role devolves to innovation policy and the operating environment for Finnish companies. Particularly in the longer term, a well-functioning education system improves the potential for labour productivity growth. ‘In Finland, the average educational attainment of young adults began to decline some 10–15 years ago. This is exceptional in international comparison and concerning from a Finnish perspective,’ commented Governor Rehn.