By Ritsuko Ando and Jussi Rosendahl
HELSINKI, June 19 Finland on Wednesday slashed
the outlook for its economy, predicting it will shrink for the
year, raising doubts about its reputation as one of the euro
zone's healthiest economies.
The forecast added to concerns that traditional industries
such as paper were losing global competitiveness.
The finance ministry said it now expects Finland's gross
domestic product (GDP) to shrink 0.4 percent this year instead
of growing 0.4 percent as it forecast in March. It also cut its
2014 growth forecast to 1.2 percent from a previous 1.6 percent.
The Nordic economy is one of only a handful in the euro zone
still rated triple-A, but it slipped into recession early this
year as weak European demand hit exports of paper, machines and
The announcement follows a similar downgrading by the Bank
of Finland, which last week abandoned its previous prediction of
modest growth to forecast a 0.8 percent contraction this year.
The government acknowledged the slowdown wasn't caused by
the euro zone's long-running debt crisis alone, but also by a
struggle among traditional industries to respond to
globalisation and technological change.
"Industrial manufacturing in particular will decline sharply
due to both cyclical and structural reasons," it said in a
Finnish mobile phone maker Nokia has struggled to
catch up after falling behind Samsung and Apple
in smartphones. Also the country's paper industry has
been hit by a slump in demand from print media as consumers and
advertisers have shifted to the Internet.
Stora Enso, Europe's second-biggest paper maker, said on
Tuesday that it plans to cut 2,500 jobs in its latest round of
consolidation to cope with shrinking paper demand.
The finance ministry also said the weaker outlook meant the
government needs to take a closer look at its fiscal plans.
Weaker growth and the costs of caring for an increasingly
ageing population are expected to weigh on Finland's public
finances, which are currently among the euro zone's strongest.
The finance ministry forecast its debt-to-GDP ratio would
rise to 59.9 percent in 2015 from an expected 57.1 percent in
"If the government wants to stick to its original target of
a turnaround in debt-to-GDP ratio, there is need for further
budget adjustment," Mika Kuismanen, a senior ministry official,
Euro zone fiscal rules require countries to have debt at 60
percent of GDP or less but few countries currently meet this