The logo of Etla Economic Research in Helsinki in July 2017. Etla on Tuesday encouraged the Finnish government to at least trim its four-billion-euro investment programme, estimating that the programme will all but offset the effect of fiscal adjustment on the budget deficit. (Aku Häyrynen – Lehtikuva)
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ETLA ECONOMIC RESEARCH on Tuesday said the Finnish government should either reduce or entirely abandon its four-billion-euro investment package due to an underwhelming return outlook for the programme.
The package contains investments in measures to curtail the growth of the infrastructure maintenance deficit and develop transport connections.
The government programme outlines that the investments will be funded with proceeds from the divestment of state assets, meaning they would not increase the need to borrow this electoral term.
Etla on Tuesday pointed out that the investment package will result in an increase in spending on infrastructure projects at the same time as the government is carrying out fiscal adjustments worth three billion euros in 2024–2026. The investment package, it added, will all but offset the impact of the fiscal adjustments on the budget deficit.
“The public economy is not exactly flush with good news. The government will look for further savings in the framework session this spring. It should recognise, however, that the return outlook for the investment package is so underwhelming that abandoning it would reduce the need to take on debt,” said Aki Kangasharju, the managing director at Etla.
As an example of an investment with a muted return outlook, the research institute pointed to the proposed high-speed rail connection between Helsinki and Turku. There are no projections, it highlighted, that indicate that the investment would yield a sensible return.
While Finland is likely to survive the EU’s excessive deficit procedure, it is circumventing its own fiscal policy guidelines, according to Kangasharju. He pointed out that the government has only entered some parts of the investment package into the framework – effectively, a ceiling on budget expenditures – in what is a demonstration of lack of respect for the framework procedure.
Etla commented on the investment plans as it released its latest economic forecast for Finland.
The Finnish economy, it forecast, will grow by 0.3 per cent this year, following a difficult start to the year. The growth is expected to accelerate to 1.4 per cent in 2025 but slow down to 1.3 per cent in 2026.
Household consumption is expected to grow this year, but the growth will remain modest due to the additional adjustment measures. Investments will similarly start to recover on a broad basis, albeit slowly.
Päivi Puonti, the head of forecasting at Etla, said the turnaround will take place on its own, without any policy measures.
“There are things that waiting will not improve, however. Finland’s long-term growth outlook and financial position must be restored. I would say the short-term conditions are currently less of a concern than the long-term economic outlook,” she commented.
Etla also forecast that the unemployment rate will continue to creep up in 2024 but decline in 2025. Inflation, in turn, is expected to come in at 1.4 per cent, well below the 2.5 per cent forecast for the eurozone.
The budget deficit will remain at about three per cent until 2026, when public debt will rise above 80 per cent of gross domestic product.
Aleksi Teivainen – HT
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Source: www.helsinkitimes.fi
