Phenomena in the Finnish economy in 2020: These things were surprising, these things changed – perhaps permanently
The year 2020 will go down in history as the year of the coronavirus when almost everything in the economy went differently than we thought in January. According to Timo Lindholm, Chief Economist at Finnvera, what is even more important is that many things have changed for good. However, not all surprises were negative: there were also many positive phenomena in these strange circumstances. We compiled a list of 6+1 economic phenomena in 2020.
1. From a European perspective, the Finnish economy’s resilience is good
“According to the Bank of Finland and the Ministry of Finance, the economic downturn in Finland in 2020 will be smaller than in the rest of the eurozone. It seems strange to be satisfied with the 3–4% drop in GDP that Finnish economy will end up with this year. It shows the relative nature of economic misery. Many other European countries have fallen much more dramatically than Finland this year. The industrial structure and long-term order books, the smaller share of private services than in many other countries, the flexibility of enterprises and the functionality of banks and the entire financing system explain the resilience of our economy. On the other hand, Finnish economy has recovered quite clumsily from previous crises. This is an opportunity to show that the old pattern no longer applies here,” comments Timo Lindholm.
2. Enterprises demonstrated their ability to adjust
“Enterprises in Finland have been able to adjust their operations quite well to the business slowdown and restrictions. They have managed to cut costs and used external financing cautiously. Things have been turned down a couple of notches. The financial position of SMEs has proved stronger than expected.
“In industry, the decline in production and orders has been considerably less pronounced than in previous deep recessions. Towards the end of the year, the number of new orders started to rise again. Another indicator of enterprises’ ability to adjust is the fact that unemployment has not risen unreasonably much.”
3. The functionality of financial markets helped in the crisis but 2021 will put the resilience of enterprises to the test
“After the hectic spring, demand for Finnvera’s SME financing levelled off quickly and the autumn did not bring along a new major wave of instalment-free periods as expected. The flexibility of financial markets and smooth cooperation between Finnvera and other financial institutions certainly played a significant role in helping enterprises overcome the acute phase of the crisis. However, the first half of 2021 is crucial for many enterprises: they should start generating a considerable amount of new turnover quickly.
“The financing of large corporates, and in particular their export financing, has shown that in exceptional circumstances, financing is a very important element of competitiveness. Major exporters have been supported by their existing order books. The preparation of new large export projects has been delayed and without public financing, their successful completion would be considerably more difficult.”
4. The service sector will likely reap the benefits of consumers’ strong finances
“Households have increased both their bank deposits and their investments in listed shares this year. In the summer, deposits exceeded the limit of EUR 100 billion. Households have now accumulated some extra money and are also willing to spend it, even if a lot of consumer euros have flowed to many retail trade sectors. This ‘consumption reserve’ is especially associated with a wide range of services. Businesses in the service sector will have a very good period ahead of them, provided that they can wait for accumulated demand to realise.”
5. Permanent change in working culture
“The coronavirus pandemic seems to have permanently changed working culture. Remote work is starting to sound like an old-fashioned term. Instead, we should perhaps talk about location-independent work, which has clearly become a permanent state of affairs in many professions. Urban traffic flows have changed. This also changes attitudes towards salaried employment. The results of the work, not the detailed monitoring of each minute spent on them, has now become the most important thing. At the same time, the individual’s responsibility for managing their own workload, motivation and stress levels has grown.”
6. Debt financing postpones the necessary restructuring of the economy
“Another major change this year took place in the attitude towards public debt. Its sharp growth is clearly viewed in a more relaxed manner than before. The use of readily available national debt financing is an essential remedy for the direct losses resulting from the coronavirus pandemic. In the longer term, however, loose debt money carries a high risk: there is insufficient imperative to reform the functioning and structures of economies and corrective action may be postponed further. However, it is well known that the pandemic has only increased the need for economic reform, which existed well before the first news about the coronavirus was published.
“Even though the increase of national debt is not yet alarming, we do not know when it will become a problem – either because of higher interest rates or a deterioration of the country’s credit rating.”
+ Lessons learnt from 2020?
“One of the most important lessons of this very exceptional year is the unpredictability of major changes. The belief in the somewhat boring, predictable and linear course of the world has been hit hard. After this year, we must be able to continue building a different future without prejudice. That future may be much brighter than the past we have seen,” Lindholm says.
More information on this topic:
Finnvera’s “Rahoitus & kasvu” overview of financing and growth in 2020 and the recordings of the Rahoitus & kasvu LIVE webinars can be found at finnvera.fi/rahoitusjakasvu (in Finnish)
Timo Lindholm, Chief Economist, Finnvera, tel. +358 50 303 9398