Oecd Economic Surveys : Finland 1982-1983.

73 Pages·4.578 MB·English

by  OECD

RGANISATION FOR ECONOMIC CO-OPERATION A N 0 DEVELOPMENT
ORGANISATION DE COOPERATION ET DE 0 E V E L 0 P P E M E N T ECONOMIQUES
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OECD ECONOMIC SURVEYS
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FINLAND
DECEMBER 1982
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December 1960, which provides that the OECD shall promote policies
designed:
to achieve the highest sustainableeconomicgrowth and employ¬
ment and a rising standard ofliving in Member countries, while
maintainingfinancialstability,and thustocontributetothedeve¬
lopment ofthe world economy;
: tocontributetosoundeconomicexpansioninMemberaswell as
non-member countries in the process ofeconomic development:
to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international
obligations.
The Members ofOECD are Australia, Austria. Belgium, Canada.
Denmark, Finland, France, the Federal Republic ofGermany, Greece.
Iceland, Ireland, Italy,Japan, Luxembourg, the Netherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland.Turkey, theUnited
Kingdom and the United States.
TheSocialistFederal RepublicofYugoslaviais associated in certain
work oftheOECD, particularly thatoftheEconomic and Development
Review Committee.
©OECD, 1982
Application for permission toreproduce or translate all or part ofthis publication should be made to:
DirectorofInformation, OECD
2. rue Andre-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 7
I. Recent economic developments and short-term prospects 8
Recent trends 8
Stance of economic policy 20
Short-term prospects 25
II. Structural issues in manufacturing 28
The 1977 programme and likely outcome 29
Finnish manufacturing industry performance 30
The role ofpolicies 38
Prospective medium-term problems 40
III. Conclusions 43
Annex: Chronology of main economic events 49
Statistical annex 56
TABLES
Text
1. Demand and output 9
2. Incomes and prices 13
3. Balance of payments 17
4. Public finance 21
5. Short-term forecasts 26
6. Medium-term targets and forecast outcome 29
1. Finnish relative economic performance 30
8. Finnish manufacturing productivity performance 32
9. Sectoral growth of manufacturing productivity 32
10. Manufacturing industry profits 34
11. Competitive position of Finnish manufacturing 36
12. Finnish manufacturing trade 38
13. General government relative size and net lending 40
Statistical annex
A. Supply and use of resources, current prices 56
B. Supply and use of resources, 1975 prices 57
C. Gross domestic product by industry oforigin, 1975 prices 57
D. Central government revenue and expenditure 58
E. Balance ofpayments 59
F. Labour market 60
G. Production and employment by sector 61-62
H. Imports: Prices, volume, value and by commodity group 63
I. Exports: Prices, volume, value and by commodity group 64
J. Foreign trade by area 65
K. Prices and wages 66
L. Money and credit 67
DIAGRAMS
1. Labour market indicators 12
2. Consumer prices -Finland and OECD 14
3. Corporate sector indicators 16
4. The Finnish currency index 19
5. Monetary indicators 24
6. Manufacturing's share of GDP 31
7. Manufacturing investment ratio 33
8. Finnish real wage gap 35
9. Competitiveness, export performance and bilateral trade 37
10. Capacity utilisation and unemployment 42
BASIC STATISTICS OF FINLAND
THELAND
Area(1000sq.km) 337 Populationinmajorcities, 980:
ofwhich: Helsinki 463036
Cultivatedland 27 Tampere 166228
Forests 187 Turku 163680
Lakes 32 Urbanpopulation
(percentoftotal) 60
THEPEOPLE
Totalpopulation(1980) 4787778 Manpowerbyindustryin 1980
Persq.kmoflandarea 15.7 (percentoftotal):
Average(1976-1980,perthousand): Agricultureandforestry 12
Livebirths 13.6 Industryandconstruction 34
Deaths 9.3 Commerce 14
Netnaturalincrease 4.3 Transportandcommunication 8
Netincreaseofpopulation 2.7 Services 31
Others I
PARLIAMENTANDGOVERNMENT
CompositionofParliament, Government,numberofministers
numberofseals(1982): from
SocialDemocraticParty 52 CentreParty 6
NationalCoalition(Conservatives) 46 SocialDemocraticParty 5
CentreParty' 41 DemocraticUnion 3
DemocraticUnion SwedishPeople'sParty 2
(includingCommunists) 35 Independent 1
SwedishPeople'sParty 10
ChristianUnion 10 Total 17
FinnishRuralParty 6
Total 200 Previousgeneralelection: March 1979
Nextgeneralelection: March 1983
PRODUCTION
GrossDomesticProduct 1980 GroesDomesticProductbyindustries
(Mk.million) 186846 in 1980(percent):
GDPperhead,USdollars, 1980 10480 Agricultureandforestry 9
Grossfixedcapitalformation 1980 Industryandconstruction 39
(Mk.million) 46162 Commerce 11
Transportandcommunication 8
Services 33
THEPUBLICSECTOR
Publicconsumption 1980,percent Generalgovernmentrevenueand
ofGDP 18.6 expenditure, 1980(Mk.million):
Grossfixedcapitalformation 1980, Currentrevenue 83298
percentofGDP: Currentexpenditure 76685
Generalgovernment 3.3 ofwhich:
Consumption 34738
Transfers 32370
Subsidies 7602
FOREIGNTRADE
Exportsofgoodsandservices, Importsofgoodsandservices,
percentofGDP, 1980 34.1 percentofGDP, 1980 34.9
Mainexportsin 1980(percent Mainimportsin 1980(percent
oftotalmerchandiseexports): oftotalmerchandiseimports):
Agricultural Rawmaterials,etc. 66.3
andforestryproducts 2.3 Fuelsandlubricants 7.2
Woodproducts 14.7 Investmentgoods 13.7
Pulpandpaper 29.8 Consumergoods 12.8
Metalproducts 21.9
Othergoods 31.3
THECURRENCY
Monetaryunit:Markka CurrencyunitsperUSS,average
ofdailyfigures:
Year 1981 4.315
November 1982 5.534
Note:Aninternationalcomparisonofcertainstatisticsisgiveninanannex-table.
1. IncludesformerLiberalPeople'sParty.
ThisSurveyisbasedontheSecretariat'sstudypreparedfor
theannualreviewofFinlandby the EconomicandDevelopment
Review Committee on 7th October 1982.
Afterrevisionsin lightofdiscussionsduringthereviewand
updating,finalapprovaloftheSurveyforpublicationwasgivenby
the Committeeon 23rdNovember 1982.
INTRODUCTION
During its latest cyclical upturn covering the two years to end-1980 Finland
experienced the fastest growth of output in the OECD area. In keeping with
developmentsintheinternationalenvironment,thesubsequentdownturnhas,however,
so far proved somewhat more pronounced than expected and unemployment is rising
again. In certain other respects recent developments have been somewhat more
satisfactory.Countercyclicalpolicymeasureshavehelpedsmooththeinvestmentcycle,
thereby contributing to dampening the traditional volatility of the Finnish economy.
Despite the persistent weakness in Finland's OECD markets, the current external
balance has strengthened, thanks not only to sagging domestic demand but also to
increased exports totheSovietUnion. There has alsobeen some easing in inflationary
pressures, on both the price and wage fronts, helped by specific policy measures.
Followinganeasinginstancebegunlastyear,budgetoperationsclearlyaddedtogrowth
in 1982,whileliquidityconditionsremainedeasy. InOctober 1982theFinnish Markka
was devalued by 9'/2 per cent in two steps, the second one following immediately the
Swedish 16percent devaluation. Atthesametime, apackageofaccompanyingpolicy
measures, including a reduction in social security contributions and in sales tax on
industrialinvestment,wasannouncedwithaviewtoimprovingthecompetitivenessand
profitability of the manufacturing sector.
The short-term outlook points to continuation of sluggish activity followed by a
mutedupturninthecourseof1983.OECDmarketsareexpectedtoremainweak,while
prospects for exports to the Soviet Union are rather uncertain. Unemployment is,
therefore,likelytocontinuetoedgeupward,approachingthe 1978 peak. Astheeffects
of the devaluation and accompanying measures are felt, the prospects are for some
resurgence of inflationary pressures next year, but also for some improvement in
competitiveness. The medium-term growth, unemployment and inflation objectives
established in conjunction with the five-year stabilization programme introduced in
1977 will not be realized, although the balance of payments goal will be more than
fulfilled. The second oil shock hasobviously exercised a fundamental influence on this
outcome. Nevertheless, and contrary to experience in many other Member countries,
the medium-term strategy has, by incorporating certain supply-side elements and
emphasizingtheneedforimprovementintheopensectors'competitiveness,beenrather
successful in forestalling the emergence of major imbalances in the economy.
PartI ofthepresentSurveyreviewsrecentdevelopmentsandpolicystanceaswell
astheeconomy'sprospectsforthebalanceofthisyearand 1983.PartII isdevotedtoan
analysisofsomemedium-termissuescentredaroundproblemsofindustrialadjustment.
Finnish manufacturing's performance in recent years is examined in relation to both
earlier trends as well as to that of other OECD countries and some of the problems
possibly facing this sector in the future are touched upon. Finally, Part III draws
together the main features of the earlier Parts and concludes the Survey with some
policy considerations.
I. RECENT ECONOMIC DEVELOPMENTS
AND SHORT-TERM PROSPECTS
Real GDPgrowth decelerated from around 6 percent in 1980 to 1'A percent last
year, with an absolute decline in activity in the first half and some recovery in the
second.Althoughexportgrowthslowed,thedownturnessentiallyreflectedaweakening
in domestic demand which, after growing by nearly 7 per cent in 1980, fell by 1.2per
centin realtermsin 1981.Thedeclinewasconcentratedtothefirsthalfoftheyearand
reflected in large measure a marked stock adjustment. Preliminary estimates indicate
verysluggishactivityinearly 1982.Theriseinunemploymentwasinitiallylimitedbya
reduction in hours worked, but from around the Summer of 1981 the number of
unemployedstartedincreasing, averagingsome6V4 percentofthelabourforceinearly
1982. Inflation hascontinued toabateoverthelast 18 monthsorso, with the 12 month
rate of increase in consumer prices falling to 8.1 per cent by September 1982, a rate
somewhatabovetheOECD averagebutclearly belowthatofotherEuropean Member
countries. The current external account has strengthened significantly; following a
sharpreductioninthedeficitlastyearasurplusemergedinthefirsthalfof1982. Recent
experience suggests a possible improvement in the trade-off between domestic and
external equilibrium, but it is too early to judge how lasting this may be. It should
provide policy with some extra room for manoeuvre, although a recent weakening in
State finances may impose new constraints on the authorities' freedom of action.
Recent trends
Domestic demand, output and employment
Thevolumegrowthrateofprivateconsumptionalmosthalvedfrom 2.9 percentin
1980 to 1.6 per cent last year. However, viewed against the sharp deceleration in
household real disposable income growth (from 3.1 toonly 0.3 percent) pursuant toa
much slower rise in non-wage income and an increased tax burden, the slowdown in
expenditure growth was relatively moderate. A shift in household income structure in
favour ofwages partly accounts for the relative buoyancy ofoutlays, as the recorded
savings ratio slipped by % percentage point1. An easing in monetary conditions,
permitting a rapid expansion of consumer credit, contributed to boosting outlays on
durableswhichnormallytendtoamplifycyclical movementsinconsumerexpenditure2.
The impact of exchange rate developments (in particular of the Deutschemark) on
relative price movements also promoted durable purchases, which are relatively
import-intensive3. Preliminary estimates suggest a small decline in volume outlays in
the first quarter of 1982.
Therecentinvestment cycle upturn proved relatively modest, with the investment
ratio at its peak in 1980 only reaching its average value for the 1970s. Business fixed
capital formationsuffered asharpreversal in 1981 andagain in thefirst monthsofthis
year, despite the relative buoyancy of profits -a situation rather atypical in Finland.
Volume outlays on machinery/equipment have been particularly volatile, possibly
reflecting the timing of import deliveries. An appreciable proportion of expenditure
1. However, perhaps 16percentage point ofthedeclineto 5'/4percent was imputable toa technical
revisionofStatetaxrevenuerecordingprocedures.Econometricstudiessuggestthatrealinterestrateshave
littleeffecton households'savings behaviour.
2. Thesharpincreaseinborrowingbyhouseholdspushedthelatters'indebtednessasatyear-endupto
theequivalentof49.7percentoftheirdisposable incomefrom 47.2percentat end-1980.
3. TheBankofFinlandmaintaineditscurrencyindexunchangedlastyear,whichimpliedanaverage
6.9percentdeclinein the DM exchange rateagainstthe Markka.
Table 1. Demand and output
Percentage volume change frompreviousperiod
1981 Seasonally-adjusted annual rate
Mk.
Billion 1978 1979 1980 1981 1980 1981
I II I II
Private consumption 115.6 2.6 5.6 2.9 1.6 2.7 2.6 0.8 2.4
Government consumption 40.4 3.8 3.7 4.4 3.4 4.8 4.3 2.6 4.1
Gross fixed investment* 51.4 -8.7 3.8 10.5 1.2 14.3 9.4 -4.9 5.4
Final domestic demand 207.4 -0.2 4.8 5.0 1.9 5.9 4.6 -0.3 3.5
Stockholding*' 1.2 -0.9 4.1 1.6 -2.9 1.1 2.3 -6.4 -0.6
Total domestic demand 208.6 -1.1 9.4 6.7 -1.2 7.0 7.0 -6.9 2.8
Exports of goods and services 73.4 8.1 9.2 9.0 4.1 15.4 3.8 5.1 2.0
Imports of goods and services 70.0 -3.1 16.1 11.8 -3.9 16.4 2.8 -10.1 2.1
External balance' 3.4 3.3 -1.2 -0.4 2.5 0.3 0.5 4.8 0.1
Gross domestic product 212.0 2.3 7.6 6.0 1.3 7.1 7.2 -2.1 2.8
* of which:
Private 44.2 -10.1 4.1 10.8 0.6 14.4 9.8 -6.2 5.8
Government 7.2 0.8 1.5 9.1 4.4 14.0 6.7 4.1 2.9
Residential 13.3 -1.7 -3.4 4.2 -4.1 0.0 4.1 -5.7 -7.9
Non-residential construction 17.4 -4.5 0.6 8.8 -2.1 15.0 . 3.4 -6.0 0.6
Machinery/equipment 20.7 -18.1 13.4 17.3 7.8 24.4 19.2 -2.3 19.0
1. Including statistical discrepancy.
2. Contribution to GDP growth rate.
Source: Finnish National Accounts.