April 26, 2017 / 11:50 AM / 2 years ago

Finnish government to fall short of economic targets, analysts say

HELSINKI (Reuters) - Finland’s center-right government does not plan new spending cuts or major growth-boosting reforms in the second half of its four-year term, in a policy plan outlined late Tuesday, prompting criticism that it has not done enough to boost the economy.

Minister of Finance Petteri Orpo (L), Prime Minister Juha Sipila (C) and Minister of Foreign Affairs Timo Soini hold a news conference in Helsinki, Finland, April 25, 2017. Lehtikuva/Antti Aimo-Koivisto/via REUTERS

Finland is slowly recovering from a decade-long economic stagnation, sparked among other things by the decline of Nokia’s former phone business, high labor costs and a recent slowdown in neighboring Russia.

The three-party coalition said it was on track with its plan to save 10 billion euros ($10.9 billion) annually in the longer term but said it was, at the moment, lagging behind its employment and debt targets.

The government aims to lift the employment rate to 72 percent from current 67 percent by 2019, and balance the public finances by 2021.

Finance Minister Petteri Orpo said both aims look out of reach with current economic forecasts, but added that new measures could help.

“We haven’t reached the targeted path yet, so we’re introducing new measures... but we are sticking to our fiscal line: no new cuts, no slack (spending),” he told a press conference.

“The economy is at a crossroads, we have seen stronger growth in the past months, which gives us hope.”

The government said it would reallocate more funds to employment agencies, and that it would tackle welfare traps by lowering daycare payments and encouraging people with subsidies to take up jobs that require long commuting.

The economy is expected by most banks to grow around 1.5 percent this year and the next. In February, however, the GDP increased 3.0 percent.

Growth of 2.5 percent going forward would fulfill the government’s targets, Nordea economist Aki Kangasharju said.

“(The review) is a belly flop, it lacks ambition... Much more could have been done to boost employment,” he said.

“The economy is adrift, a miracle needs to happen for the goals to be reached.”

Managing Director Mikael Pentikainen from The Federation of Finnish Enterprises said the government missed a historical chance to change labor laws that opposition leftist parties seek to protect: “Flaws in our labor market hamper growth as work and people do not match.”

The government, which took office in 2015, has faced demonstrations and strikes for its austerity drive that included a hard-fought labor reform which trimmed workers’ benefits.

All the ruling parties - Prime Minister Juha Sipila’s Centre party, Orpo’s conservative NCP party and nationalist Finns party - lost support in a local government election earlier this month, winning in total 47 percent of votes.

Finland’s budget deficit for 2018 is seen at 4.1 billion euros, down from 5.6 billion expected for 2017. The general government debt-to-GDP ratio breached EU level of 60 percent last year.

Additional reporting by Tuomas Forsell; Editing by Toby Chopra

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