The new coalition government is likely to impose significant budget cuts that would drag on Finland’s already ailing economy. This austerity is likely to act as a drag on growth. Although the parties disagreed in the run-up to the election on the scale of cuts that were needed, an agreement to save between €6 billion and €10 billion over the next four years seems likely. This is the equivalent of 0.7% to 1.2% of GDP per year. But there are reasons to think that fiscal consolidation might be less of a constraint on growth than it has been over the past four years. A key difficulty that many governments have had in reducing their deficits has been that this requires the other sectors of the economy – the domestic private sector and the overseas sector – to increase their borrowing and spending. This time round, prospects for domestic demand growth are slightly more positive. And the euro is much weaker, providing a potential boost to the export sector. “We expect Finland to return to growth this year. But only just. We forecast a 0.5% expansion in GDP this year and a modest acceleration to 1.0% growth in 2016.” said Capital Economics
The material has been provided by InstaForex Company – www.instaforex.com