Finland To Grow At High Speed Despite Nokia Profit Woes
By RUPINI BERGSTROM
OF Dow Jones Newswires
STOCKHOLM -- Nokia Corp.'s (NOK) recent profitability woes are a bitter pill but, though the telecoms company accounts for a large chunk of Finland's exports, it will be swallowing it alone.
Finland's economic prospects are sweetened by a population of optimistic consumers. There is some handwringing about the technology-led economic slowdown, not least because of Finland's heavy dependence on the sector. But domestic demand is taking over as the engine of growth, economists say.
Private consumption in Finland is on the rise, fueled by recent strong wage increases, greater job security, low interest rates, and pending income tax cuts.
Carlo Eraekallio, chief economist for Handelsbanken in Helsinki, said the technology sector in Finland is becoming increasingly important.
"Last year of 5.5% growth, 4.5 percentage points came directly from exports. And electronic exports make up roughly 30% of the total."
Data released Friday clearly indicated the slowdown in the electronics sector, where production in April contracted by as much as 25% per working day, according to Statistics Finland. Overall, the total output volume in the economy rose 1.9% in the year to April, down from March's 3.4% rise.
But Eraekallio said while the sector's slowdown will take its toll on the Finnish economy, exports and orders, domestic demand will ensure a relatively brisk pace of growth.
Eraekallio, more pessimistic than most, sees Finland's gross domestic product growing 3.0% in 2001, accelerating to 3.8% in 2002. That compares with expected growth in the euro zone, of which Finland is part, of between 2.2% and 2.8% this year.
"Both Finland and Sweden are a lot more sensitive to U.S. business cycle swings than Europe on average due to large ICT sectors and how widely technology is used by households and corporates. But we see a recovery in the U.S. next year and this bodes well for both countries," Eraekallio noted.
Other observers are even more optimistic. Central bank governor Matti Vanhala told Dow Jones Newswires recently he expects GDP to grow by 3.9% this year. That's comparable with forecasts from other institutions that overstep even 4.0%.
Vanhala, like others, believes the impact on the economy of the troubled telecoms sector, Nokia in particular, is being overplayed.
Export Growth Will Slow, But Mfg Should Hold Up
That said, Finland isn't likely to repeat last year's stellar 18% export growth as the weakening of international demand is especially pronounced in the telecoms sector.
The direct effects of the rapid U.S. slowdown on Finland are limited as Finnish exports to the U.S. make up just 7% of the total. But Finland's largest trading partners in Europe and Asia are more exposed to the U.S. market, so the indirect effect is concrete.
Export growth is also likely to be hampered by the generation switch in mobile handsets. The delay in launching the General Packet Radio Service networks has slowed down sales of second-generation mobile phones as consumers postpone their GSM replacement decisions.
"But next year, the delivery of new networks and handsets will again strongly support export growth," said an analyst, who asked for anonymity.
Thanks to the weak euro, Finnish exports have a competitive edge while a strong dollar also favors Finland because of its dominant position as an invoicing currency.
"All-in-all, the Finnish manufacturing sector demonstrates strong competitiveness based on an undervalued currency as well as rapid productivity growth. In our judgment, manufacturing should therefore have good potential to gradually increase its pace of expansion in the course of next year," said banking group SEB said in its latest outlook on Finland.
Private Consumption Growth To Remain Strong
It added that private consumption may grow by more than 3% annually over the next few years, despite increased savings. And while the technology sector slips, this will keep the economy growing at high speed.
Household optimism, and thus higher consumption, stems from a variety of sources.
Job security has increased at the same time as unemployment has steadily fallen towards the average level in the euro zone. Earnings are boosted by generous wage increases, secured through a two-year wage deal, and by exercised employee stock options. Interest rates, which are historically low, also support consumption. And given strong public finances, Finnish households can count on additional income tax cuts both this year and next.
At the same time, while its Swedish neighbor has suffered dramatically from tumbling share prices, Finnish consumption remains largely unhurt by bearish stock markets.
The stock market fall has to no small degree been offset by high house prices. And, in any event, stock ownership in Finland is limited to top income households.
According to the Finnish Foundation for Share Promotion, only one in three households is exposed to the stock market, either directly or through a mutual fund. |
