The Finnish economy has outpaced all growth forecasts thus far this year as lower labour costs have allowed exports to pick up steam.
Unit labour costs decreased by 2.7 per cent year-on-year in Finland between January and March, reports Eurostat.
The notable drop in average labour costs was largely a consequence of the adoption of the so-called competitiveness pact, a tripartite agreement on measures to promote cost competitiveness and economic growth in Finland, at the beginning of the year.
Finland was thereby an exception in the EU-28.
It was the only member state to record a substantial drop, and one of only three member states to record any drop at all, in unit labour costs in the first quarter of the year, with Luxembourg and the Netherlands both only recording a decrease of 0.1 per cent. Its main rivals, by contrast, reported an increase in unit labour costs – Germany one of 2.5 per cent and Sweden one of 1.9 per cent.
Eurostat also revealed that unit labour costs increased by an average of 1.5 per cent in the euro area and 1.7 per cent in the European Union.
The Finnish Government and labour market confederations found an agreement on the competitiveness pact in June, 2016. Trade union confederations agreed to, for example, increase annual working time, freeze wage increases, reduce holiday pays and transfer liability for certain social security contributions from employers to employees.
The Government, in turn, agreed to introduce income tax concessions to offset the effects of the measures on the purchasing power of consumers.
Over 90 per cent of all wage earners in the country have committed to the competitiveness pact.
Effects already visible
The effects of the consequent decrease in unit labour costs are already visible in Finland.
Statistics Finland has estimated that the country’s gross domestic product grew by 2.8 per cent year-on-year between January and March. Several analysts have attributed the increase to the re-emergence of exports as a driver of economic growth alongside private consumption, a fact that is evidence of the improved cost competitiveness of businesses.
The positive development has likely continued also in the second quarter of the year, says Pasi Kuoppamäki, the chief economist at Danske Bank.
“The increase in total output should continue at a solid rate for the rest of the spring, because industrial confidence surveys are showing that order books have filled up and consumer confidence has remained high,” he commented to Kauppalehti in May.
The upbeat economic data from the first few months of the year has already prompted financial institutions to upgrade their growth forecasts for Finland. Nordea and the Ministry of Finance both raised their expectations considerably in June, the former doubling its forecast to 3 per cent and the latter almost tripling its to 2.4 per cent.