Macroeconomic perspective of Finland's Economy.
ABOUT FINLAND
The government does, however, exercise a monopoly or a major role in several sectors of Finland's economy, which is essentially based on private ownership and free entrepreneurship. Finland had not yet fully industrialized after World War II, and a sizable section of the population was still working in forestry, mining, and agriculture. Primary production gave way to industrial growth in the early postwar decades, which thereafter gave way to a service- and information-based economy. As the nation took advantage of its strong economic ties with both eastern and western Europe in the 1980s, the economy expanded quickly. However, Finland was in an economic slump at the start of the 1990s, which was caused by both the loss of its main trading partner with the fall of the Soviet Union in 1991 and a wider European economic downturn. Midway through the 1990s, as Finland proceeded to retool its industries and reorient its trade predominantly toward western Europe, the economy started to slowly recover. Since 1949, Finland has been a member of both the General Agreement on Tariffs and Trade and the Organization for Economic Co-operation and Development. Before quitting that organization to join the European Union (EU) in 1995, it first joined as an associate (1961) and then as a full member (1986) of the European Free Trade Association.
ECONOMY OF FINLAND
The Finnish financial market underwent rapid development beginning around 1980s and 2007s. The government's influence on the financial system shrank, and the economy shifted more and more in favor of free markets. Finland first opened its doors to foreign banks in the early 1980s, and in 1991, branch offices could be established there.
CRISIS OF FINLAND 1980-1990s
Fig 2: Finland Economic Crisis
One of Finland's biggest economic crises in its history, the early 1990s downturn was even worse than the Great Depression of the 1930s. The 1991–1993 downturn had a significant impact on Finland's economy during the 1990s, particularly in terms of employment but also on culture, politics, and the general sociopolitical climate. The gross domestic product fell by 13%, while the unemployment rate increased from 3.5% to 18.9%. Since then, unemployment has persisted despite a general recovery, and Finland has never regained the level of almost full employment that it enjoyed prior to the crisis. The 1980s' economic policies were a root factor. Finland experienced a significant economic boom in the 1980s that persisted and "overheated" the economy, causing the depression's corrective contraction. One cause was a change in banking legislation in Finland in 1986 that made it easier for Finnish businesses to obtain credit from international banks, which was far less expensive than domestic credit in Finland. Due to this, there was a widespread hunt for foreign lenders, which contributed to the weakness of the Finnish central bank.
Additionally, the laws governing consumer credit were greatly relaxed, and the portfolio of consumer loans grew significantly, often by more than 100% annually. These elements contributed to the rapid short-term expansion, which greatly expanded both commercial and Values of residential real estate and the size of the national economy. Due to the climate that was created by the stock and real estate booms, significant short-term profits were reported, giving the economy an artificially inflated appearance of immense prosperity. The use of loans to obtain extremely large sums of money very rapidly on paper by taking advantage of those booms was referred to as the "casino economy." Consumption and investment fell in both the public and the private sector as a consequence of the depression. The number of company bankruptcies rose greatly, and the bankruptcies and the weak economy caused mass unemployment. Unemployment from 1992 to 1997 was consistently over 12% and went as high as 36.7% in construction industry during year 1994. Smaller banks ended up absorbed by big ones because they had difficulty maintaining profitability as a result of risky loans made to companies that went bankrupt, resulting in a nationwide bank crisis. As a result of the financial crisis, Finland's banking system's liquidity declined. In 1991, the government responded by guaranteeing the debts that the Finnish banks had taken on. Finland had devaluations in 1991 and 1992 to aid the export sector, which left business owners who had taken out loans in foreign currencies in a worse financial situation.
• Restructuring and downsizing the banking industry: – Merger of two largest commercial banks (KOP + SYP = Merita) –
• Merger of biggest bank with a Swedish bank (Merita + Nordbanken = Nordea) – One third of bank staff laid off.
• Banking crisis could have been insolvable without lower interest rates (=change in monetary policy); another year of recession would have exploded the credit losses.
• Saving the banks was a policy priority, helping their customers was not discussed.
Fig 5: Finnish Refugees on march to revolt against the 1990s crisis
CRISIS OF FINLAND 2007-2008s
The 2008 global financial crisis that began in the euro zone was similar to earlier crises. The economic trends before to the crisis were marked by excessive loan growth this time as well. The euro area's 12 member nations' largely positive economic growth over the first ten years of its existence concealed conditions that may have led to a financial disaster. The first of them was just how benign the economic changes were. "Great Moderation" defined the two decades before the financial crisis in affluent economies. The volatility of macroeconomic aggregates decreased but per capita income grew steadily. Not only in the euro area but also in the US, Japan, and other developed countries, the volatility of output, employment, and inflation decreased, plus the UK. These changes decreased public awareness of the crisis as a whole and allowed financial and macroeconomic imbalances to fester below the surface. Global macroeconomic imbalances started to appear, but in the US and the euro region, they assumed different shapes. High credit development was a prevalent trait. In the euro area, the severity of the ensuing crisis is generally ranked in accordance with the order in which the ratio of credit to income has grown. Particularly evident was the global aspect of credit expansion in the USA's enormous current account deficit, which was mirrored by China's enormous current account surplus from the end of the 1990s. The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 was the most ambitious and divisive attempt to stop such an incident from happening again. On the financial front, the act expanded government monitoring of the largest banks' operations, limited some of their riskier activities, and required them to hold higher cash reserves. It made an effort to cut down on predatory lending for consumers. While the Trump Administration had partially repealed the law by 2018, the U.S. Senate rejected a proposal to more completely repeal the new restrictions. These rules are designed to stop another crisis like the one that occurred in 2007–2008.
STATISTICAL DATA OF FINLAND CRISIS
1. GDP GROWTH RATE OF FINLAND
The graph clearly shows how the economy faced two major depressive phases in the year 1980 and 2008. The economy however recovered from both the depressions but it took a major toll on the GDP, economic growth, export, import, trade, employment and the standard of living of the people. As mentioned above, the downward trends are because of the two major financial Finnish crisis faced by the economy during the years 1980-1990s and the years 2007-2009s. The negatively affected the employment, output, production and the price level of the economy.
2. CONSUMER PRICE INDEX OF FINLAND
The stagnant graph shows an effective maintenance of the economic structure of the Finnish Economy. Although the recession that took place in the economy, the consumer price index level was maintained. The CPI values in turn showed an upward trend even during the depression phase of the business cycle.
3. EXPORT DATA OF FINLAND
Recovering from the 1980 recession, the country experienced a downfall again in the year 2008. This majorly affected the trade and business level of the Finnish Economy. The economy could not produce a substantial level of the output so as the to export it to the other countries. The supplies of the raw materials and the production needs were not fulfilled of the firms because of which the economy staggered and came to a downfall.
4. IMPORT OF FINLAND
The same explanation applies for the import downfall of the country. The fall in the domestic currency of the country did not pose much of a profit for the government to boost the import level of the country. Hence, dur to unfulfilled demands of the industrial sector we can see that the import suffered too. After proper implementation and proper allocation of resources however, the economy showed a level up in the post crises years much visible in the graph above.
CONCLUSION
Conclusively I would like to acknowledge my professor for giving such a broad topic for research. The macroeconomic data can be easily understood by studying the statistical data provided for major economic index such as GDP, CPI, Export and Import. The interpretation of the graph can be done easily as the two major downward trends has been already dealt in the topic separately. The following and respective change that took place in the economy plays a major role for the analysis of the economy of Finland. This too made me research about the policies adapted by the respective government for the betterment of the economic condition of the economy. We got to know whether the “World’s Happiest Country” is economically happy as well or no.
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