Finland may be on brink of recession

Helsinki: Finland may have entered a recession, the Finance Ministry said, cutting its forecast for growth in the northernmost euro member's economy.

Gross domestic product (GDP) will expand 0.4 per cent next year, compared with growth of 1.8 per cent forecast in October, the Helsinki-based ministry said in an e-mailed statement yesterday.

"The forecast contains the possibility of the economy experiencing a recession in late 2011 and early 2012," the ministry said.

Growing deficits

AAA-rated Finland, which sells 40 per cent of its output abroad and a third of that in the euro area, is vulnerable to the sovereign debt crisis that damps growth in the region. The Nordic country's budget deficit will widen to 1.4 per cent next year and 1.5 per cent in 2013 from 1.2 per cent in 2011, and debt as a share of GDP will rise to 54 per cent by 2013 from an estimated 49.4 per cent this year, the ministry said.

"The slowdown of growth will add to imbalances in the Finnish economy," the ministry said. "In this situation, it's essential that measures are put in place to foster market-driven growth."

Domestic demand

The recovery of growth to 1.7 per cent in 2013 "depends largely on domestic demand," the ministry said. The ministry's 2012 GDP growth estimate matches last week's forecast by the Bank of Finland.

Weakening growth means Finland's government must make "substantial" spending cuts and increase taxes to bring finances onto a sustainable footing, the Central Bank said on Dec-ember 15.

"If these steps are not taken in time, we could end up in a situation where we are forced to rapidly reduce the general government deficit at a time when economic growth is weakening," Governor Erkki Liikanen said.

"The deteriorating econ-omic outlook puts Finland's public finances in a different light."