Danske: Finland Finally Out Of Coma

Finland is an interesting case. Finnish government enjoys almost the tightest bond spreads among Eurozone versus Germany...

Click on chart to enlarge, courtesy of Nordea Markets.
However, the Finnish economy was very long in coma, as the economists at Danske Bank are summing up in their Nordic Outlook today:

After an unprecedented 7.8% fall in GDP in 2009 and a weak Q1, we expect the economy to have returned to growth in Q2 10, as exports rose in April and confidence indicators are back to normal levels.

We forecast GDP to rise 1.8% in 2010 and 2.5% in 2011. Despite the debt crisis in the euro area, Finland’s position as a low debt country gives it a good chance to recover on the back of exports. A worse-than-expected performance of the EU economies would flatten our forecast.

Strong consumer confidence and record-low interest rates are feeding through to retail sales and car registrations, which have bottomed out during spring. The housing market is expected to cool a bit after heating up during the first quarter.

A modest recovery is confirmed by a better-than-feared labour market performance. The seasonally adjusted unemployment rate appears to have peaked in January at 8.9% and hours worked have also started to rise slowly.

We expect inflation to reach 1.4% in 2010 and 2% in 2011. Most cost pressures remain low and demand on the weak side, but import prices and the rise in VAT will show up on new price tags.

The economic crisis together with policy response has created a wide budget deficit, but the incumbent government is unlikely to make major policy changes before parliamentary elections in April 2011. Austerity measures and a tax reform are likely to follow the elections.

Click on chart to enlarge, courtesy of Danske Bank Markets.

Interesting, what made the trauma so deeeep and difficult to recover...