The Organization for Economic Cooperation and Development (OECD), to which the world's richest countries belong, has assessed the impact of the coronavirus crisis on the Finnish economy. In its latest Economic Survey of Finland, released on Thursday, the OECD says that high unemployment will persist until the end of 2022 and warns of loss of competitiveness and low productivity growth.
According to the OECD forecasts for Finland, GDP is estimated to have contracted by 5% in the first half of 2020, much less than in most other OECD countries. But now when recovery has started, the Finnish economy is projected to expand only by around 2.1% in 2021 and 1.8% in 2022, also at a rate lower than that of most developed countries.
One of the main problems in the future will be the unemployment rate, which according to the survey "will peak in 2021, but will remain high by the end of 2022," when it will "slowly decline."
"Job losses and bankruptcies will likely increase in the short run, as relief measures run out," the OECD says.
The assessment welcomes some measures taken by the government to limit the effects of the crisis but says that the main risk for Finland is that virus infection rates will rise again, both in Finland and in its trade partners, delaying a recovery that should be driven by private consumption and exports.
For this reason, the OECD requires Finland to implement several measures, aimed at improving the "restrictive" market for products, the "highly selective" educational system and the labor market.
"The government should stand ready to provide further support to firms and workers if necessary, then focus on getting people back into viable jobs and restoring public finances. Enhancing education and skills, improving wage flexibility and reducing barriers to competition in sectors like transport, energy and retail, would help to spur productivity growth and bolster the recovery," the survey says.
According to Minister of Finance Matti Vanhanen, the recommendations set out in the OECD’s Economic Survey of Finland should be closely studied.
“There is a great need for structural reform in our economy. And in this coronavirus year, Finland has demonstrated that we are able to act objectively, briskly and with a focus on solutions. This same national spirit of pushing ahead must continue in the years to come,” says Minister Vanhanen.
Unemployment, education reforms
The OECD highlights that since the crisis started 15% of workers aged 15-74 have been temporarily or permanently laid off. Furthermore, 25% of those temporarily laid-off were not eligible for earnings-related unemployment benefits because they were not members of unemployment insurance funds. Thus, the survey recommends creating a government unemployment insurance fund into which all workers -or all workers who are not members of another fund- would be automatically enrolled.
To encourage employers to limit temporary layoffs to jobs they believe can be restarted, the OECD says employers should also be required to contribute to the unemployment benefit costs of their furloughed employees.
The assessment also highlights that productivity growth is low in Finland compared to other European economies, owing to skills shortages and high regulatory barriers to competition in some sectors.
To limit those harmful effects, the OECD recommends encouraging more school leavers to enter tertiary education by "reforming the highly selective admission system and increasing the number of study places."
The survey also proposes "softening the country's restrictive product market regulations and coordinating wage bargaining across sectors" to help to gain competitiveness.