“The need for additional savings cannot be ruled out”

Next week, the Ministry of Finance will begin internal budget negotiations, and preparations for next year’s national budget will undergo more rounds. Rika Plan (ps)leadership.

VM officials are currently preparing financial forecasts as a basis for budget negotiations. The thousand-dollar question is: What is the current state and outlook for the Finnish economy?

– Just a year ago, we could have predicted an immediate turnaround. Now a year has passed and there has been no turnaround. Senior Treasury officials, Secretary of State, I have had to be disappointed many times because the recession has continued Juha Majanin explain.

Officially, the recession is over, but zero growth is nothing to cheer about. Unemployment is rising, government tax revenues are falling and exports are faltering.

– Majanin says the following signs might give at least a more optimistic person reason to be hopeful.

He justifies his cautious optimism by pointing to what happened in the news during the spring and summer.

–Price increases have slowed significantly. Interest rates are falling, and the ECB is likely to cut rates twice more this year, which the market has already priced in. The decline in GDP seems to have really stopped, and the housing market is showing signs of picking up.

Majanen added that Finland’s cost competitiveness is “excellent”. Cost competitiveness refers to a company or a country’s ability to produce goods or services at a competitive price compared to other operators.

– Then, competitiveness will emerge when exports to important exporters such as Germany start to take off. Majanin said Germany is a question mark and a cause for concern.

It is true that unemployment rose in the summer, but Majanin reminds us that the labor market usually reacts to changes in the business cycle with a delay of about half a year.

– Majanin said the current rise in unemployment is not a sign of a continuing or deepening recession.

Need more adaptation?

While there is some optimism in the air, budgeting will once again be a very difficult project.

Petri Oppen The (Cork) government has decided to take 9 billion euros in measures (production cuts, tax increases, reforms) to reduce public debt, especially the national debt.

The Ministry of Finance predicted in its spring public finance plan that next year’s national budget expenditure will be 87.6 billion euros and the deficit will be 10.7 billion euros. After the second supplementary budget, the deficit for this year will be 12.7 billion euros.

The question is whether the state economy needs further adjustments, given that the forecasts for tax revenues and cyclical spending developments in the spring appear to be too optimistic.

– Majanen said the need for additional savings cannot be ruled out.

He said the extra savings could override EU fiscal policy rules, which say the public deficit must be kept below 3.5% of GDP.

Excessive deficit procedures can be avoided if the degree of exceeding the 3% deficit reference value is slight and temporary. The 3.4% excess planned by the Orpo government this year is temporary, because according to the European Commission’s forecast, Finland’s deficit as a percentage of GDP will again be below the reference value of 3% to 2.8% in 2025.

Pressure from the EU and social security

But of course this is not certain.

– We are very, very close to the deficit code. If the recession continues and growth starts to slow, we are very close to the point where we will not be able to break through the 3% reference next year.

However, the scale of possible additional savings is significantly different from that already decided.

– We are talking about one tenth of a percentage point relative to GDP.

Finland’s GDP last year was 278.6 billion euros. Of this, 0.1% is 280 million euros.

Another risk factor is too high.

– The welfare region has a total budget of minus 900 million euros this year. In the spring, the deficit was already 1.2 billion. Majanen said that there are no figures for June yet, but if the expenditures are the same, then we are very close to the fact that the funds reserved in the budget framework for financing the welfare sector are not enough.

He reminded that the demand for social security services increases by one percent every year.

– Majanen said that the growth rate at the beginning of the year was 6%, which means that it clearly exceeded the increase in the overall cost level.

Against this backdrop, there is a labour shortage in the sector.

– It forces the use of hired labor, which increases the price of purchased services. In addition, Majanin said that payroll solutions in the social security sector are expensive.

Majanin praised the social services district for having taken many steps to control costs.

– But yes, the situation remains challenging and is a particular concern.

He reminded that the financing of the welfare sector occupies a large part of the national budget. According to the Ministry of Health, the total amount of funds in the welfare sector in 2025 is about 26.2 billion euros.

Reasons for optimism

While the near-term economic outlook is murky to say the least, Majanin sees many positive signs.

– If before we had Nokia and wood processing, now we have many new beginnings: clean energy, a scalable defense industry, dual-use products (products, technologies, services or other goods that have suitable military uses in addition to normal civilian uses), space technology, artificial intelligence, network technology, chip technology.

– What matters most is how we benefit ourselves and Europe as a whole from the future European Commission’s plans, he added.

Majanen refers to the person who is elected to lead the European Commission for a second term Ursula von der Leining Economic guidelines emphasize strengthening competitiveness and green technologies.

Majanin said the economy was also pleased with the strengthening of Nordic and transatlantic cooperation, which was accelerated by Finland and Sweden’s joining NATO. The United States became Finland’s largest export destination last year, for example, and the outlook for Finland is good for the shipbuilding industry.

– We have the ingredients for success. You just have to be able to master them, says Majanen.