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IMF warns Finland of persistent problems

THE International Monetary Fund recently visited Finland to give their opinions on our economy. They think structural difficulties continue to hold back our progress, and warn that problems in Russia and the government deficit could negatively impact our immediate future.

THE IMF had expected our economy to grow to 0.7% this year and 1.3% in 2015. Now they are more pessimistic, cutting their expectations almost in half. They currently say the Finnish economy will increase 0.3% in 2014 and 0.7% next year. Two big issues they cite are a slowdown in Eastern Europe and increased fiscal consolidation by our Government. As the Government increases taxes and cuts spending to keep the budget deficit from getting out of control, this will slow our economic growth.

DURING the European sovereign debt crisis there was a group of economists that believed, somewhat incongruously, that cutting spending and increasing taxes would actually increase economic growth. This has been proven incorrect, as reason would suggest. The IMF had a fair share of economists who championed this "growthsterity," but they have quietly dropped this theory. Prime Minister Jyrki Katainen was also a believer in this, but he seems to have likewise returned to orthodoxy.

THERE is still a ghost of this growthsterity idea in the IMF's recommendations to Finland, though. They say "well-calibrated fiscal consolidation" tied to "more ambitious structural reforms" would raise our medium term growth. In other words, the government should take a lighter hand in the economy.

IMPROVING labour market performance, boosting productivity, and keeping real wages down are the IMF's three main recommendations. There are a few other things the organisation is worried about, too. The IMF isn't happy about the lack of housing in high-growth urban areas, the near-monopoly situation in retail, and the inefficiency and fragmentation of local government.

...

David J. Cord
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