Finns once employed in the country’s highest paying jobs are now joining the ranks of the unemployed and asking the state for financial aid.
“The crisis in the Finnish economy has hit especially high-productivity industries,” Juhana Brotherus, an economist at Danske Bank A/S in Helsinki, said by phone. That means “the impact is harsher on gross domestic product than on unemployment.”
The Nordic nation is reeling from body blows to its two biggest employers -- the forest and technology industries. Its erstwhile largest company, Nokia Oyj (NOK1V), has sought to control debt growth by selling its mobile phone business to Microsoft Corp. The U.S. company said this month the takeover will result in the loss of 1,100 Finnish jobs, or 20 percent of its workforce there, putting some of Finland’s best-qualified people out of work.
Jobless claims soared 17.5 percent to 4.15 billion euros ($5.6 billion) last year, the Social Insurance Institution of Finland estimates. That’s the highest level since the 1990s, the last time Finland was dragged into a prolonged period of economic decline. Unemployment (FIUER) was 9.2 percent in June, not adjusting for seasonal swings, compared with 7.8 percent a year earlier, according to the statistics agency.
The cost of insuring against a default on Finnish government debt has risen relative to similar contracts on German bonds. Five-year credit default swaps on Finland traded four basis points higher than swaps on Germany yesterday, according to data compiled by Bloomberg. In February, Finnish swaps traded lower than similar contracts on Germany.
Finland bases jobless benefits on how much a person made while employed. The more they earned, the more aid they get when they’re out of work, with the difference covered by union funds. Longer jobless claims queues add to the burden on state coffers and threaten production as the nation’s most skilled workers exit the labor market. GDP (FIGDPCH) shrank 0.4 percent in the first quarter, after contracting 0.3 percent in the final three months of 2013.
Since plunging 8.3 percent in 2009, Finland’s GDP has failed to reach pre-crisis levels. Most of the 16 economists surveyed by Bloomberg say the Finnish economy will either stagnate or decline in value this year.
Meanwhile, state spending to support the growing ranks of jobless Finns is swelling. The average daily unemployment payout, tied to a person’s previous earnings, was 67 euros a day last year, up from about 55 euros in 2008.
“Hidden unemployment, underemployment and greater retirement numbers have restrained the official unemployment figures,” Brotherus said. “There is no dramatic turn in sight this year or next; it’ll stay steadily weak.”
Compounding Finland’s economic woes is the tension surrounding the West’s relationship with Russia, the destination of 10 percent of Finnish exports. The escalating crisis in Ukraine after the downing of Malaysia Airlines flight MH17 has galvanized sentiment against Russia.
EU governments agreed yesterday on their widest-ranging sanctions yet against Russia, curbing state-owned banks’ access to financing, restricting the export of equipment to modernize the oil industry and banning new contracts of equipment with military uses.
“The clearest risk for growth” in Finland “is Russia,” Brotherus said. “Should the events in Russia lead to a full-blown crisis shaking their whole economy, nothing in our economy is safe either.”
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