March 2, 2015 / 10:22 AM / in 3 years

Finland's economy contracts for third year in a row

HELSINKI (Reuters) - Finland’s economy contracted for the third year in a row in 2014, official statistics showed on Monday, as exports continued to struggle and pressure mounted on politicians to reign in growing public debt.

Finland has yet to bring its gross domestic product back to its 2008 level because of low demand in its European and Russian markets and problems besetting its main export industries, technology and paper.

The statistics office said preliminary data showed GDP declined by 0.1 percent last year, after contracting by 1.3 percent in 2013 and 1.4 percent in 2012. It fell in the fourth quarter of 2014 by 0.2 percent from the third quarter.

“We must quickly come up with ways to strengthen economic growth and employment. But it will still take years to build it, and meanwhile we must make adjustments to public finances,” Finance Minister Antti Rinne, a Social Democrat, told Reuters.

He said there was room to help out companies seeking growth opportunities in Asia from sectors such as infrastructure or energy efficiency.

Analysts said there could be further problems ahead.

“Net exports fell, investments dropped, private consumption is down a lot. Only inventories were up,” said Aki Kangasharju, economist at Nordea Bank. “It looks like some indicators have given a too-rosy picture of the outlook.”

Latest forecasts for Finland’s growth in 2015 vary from -0.3 percent to 0.8 percent. Aktia Bank updated its 2015 forecast on Monday to a projection of 0.3 percent growth.

“Exports to other countries will grow 4 percent this year on the back of weakening euro, recovering euro zone and cheaper oil, but weak Russia limits total export growth to one percent,” Aktia economist Anssi Rantala said in a statement.

Budget deficits have pushed up Finland’s public debt-to-GDP near the EU limit of 60 percent and Aktia sees the ratio surpassing 64 percent by 2016.

“The public finance is simply too big compared to the weakened private sector. This is a structural problem which cannot be solved by stabilization policy,” Rantala said.

Finland’s quarrelsome coalition government has announced tax hikes and spending cuts worth about 6.5 billion euros by 2018, but it has so far failed to reform health care and local governments, which were among its key targets set in 2011.

Aktia’s Rantala said the government that emerges from April’s general election should launch bold cuts: “A program to cut spending by about 5 billion euros would bring significant stability to the public finances.”

Reporting by Jussi Rosendahl; Editing by Terje Solsvik and Tom Heneghan

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