Finland: the Right Decisions in the Wrong Time
|1.3.||Real Gross Domestic Product compared to potential||6|
|1.5.||ASADNX macroeconomic model||7|
|2.||Health check of Finland’s economy (2000-2013)||10|
|2.1.||Period one: 2000-2001||10|
|2.2.||Period two: 2002-2007||11|
|2.3.||Period three: The Crisis (2008-2011)||13|
|2.4.||Period four: 2012-2013||14|
At the beginning of this millennium Finland was a success story and an example for other European countries. Due to successful export oriented businesses, namely mobile phone producer Nokia and paper manufacturing companies, Finland was able to keep positive trade balance till 2010, which helped to secure stable GDP growth rate and positive output gap in most of the given period. In early 2000’s Finland had one of the biggest budget surplus in the whole Europe, which was one of the main reasons why it managed to escape from falling into recession, when many large countries (Germany, USA, UK) did not (IMF, 2014).
During those eight years until the crisis, Finland had used contractionary fiscal policy, which was logical due to the positive output gap and increasing price level. However, in 2009 Finland was hit the most from the countries who had introduced the Euro as their currency by that time (Finland Country Monitor, 2014). Finland’s GDP decreased by 8.54%, but the output gap became negative and reached -5.3% of potential GDP. Since then country has not been able to fully recover and still has negative GDP growth rate and negative output gap.
At the moment Finland is trying to heat the economy up by increasing government spending and investing into businesses (IMF, 2014). However, in many cases investments are not profitable due to the high cost of labor and materials as well as tax restrictions (Viita, 2014). Also prior to the crisis and during it Finland kept low budget deficit (about -3%) compared to other European economies who have successfully recovered from the crisis by now (IMF, 2014).
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