Modest Wage Raise Could Help Finnish Recovery

Nordea Bank says that Finland’s economic upswing will begin to taper off in 2018–and that growth depends on keeping salaries modest and pushing ahead with economic reforms.

One of Finland’s biggest financial groups, Nordea, is calling for moderation in wage rises during this autumn’s round of labor negotiations, saying that is essential to improve the nation’s competitiveness and shore up the fragile recovery, yle.fi reported.

Nordea’s chief economist Aki Kangasharju specified on Wednesday that wage increases should be kept under 0.7% and that overall level of earnings should rise by no more than 1%. “This would succeed in ensuring wage-earners’ purchasing power and continuing to improve competitiveness,” Kangasharju predicts.

Nordea argues that keeping wages moderate and boosting competitiveness are essential even during a period of economic growth, so that Finland will be able to better ride out the next inevitable decline in exports.

In a statement, the Nordic bank declares that “the Finnish economy is now on a firmer footing as both foreign trade and domestic demand contribute to growth. Export demand has picked up following the new momentum in world trade, and, going forward, employment should improve and support private consumption while business investment continues to increase rapidly.”

Nordea has decided to stick with its previous economic forecast, which predicts that the Finnish economy will grow by 3% this year, slowing to 2% next year and just 1.5% in 2019.

But it warns that the prognosis for 2018-19 may have to be downgraded if wages “are raised excessively” and if structural reforms to the Finnish economy become bogged down ahead of the spring 2019 parliamentary elections.

The financial group’s economic mavens express surprise with the growth in consumption by Finnish households.

“The growth in consumption has clearly outpaced that of incomes, so savings have declined. Consumption cannot remain this strong for long as there is no room for large wage hikes,” observes Nordea economist Pasi Sorjonen.

Finland’s economy grew solidly in the second quarter, its statistics office said recently, revising preliminary figures that had pointed to a sharp quarterly contraction, Reuters reported.

Growth was 0.4% compared with the 0.5% decline announced in last month’s flash estimate, the office said. The reason for the sharp discrepancy between the two figures was not immediately clear.