Finnish Economy Contracts for First Time Since 2005

By Kati Pohjanpalo and Juho Erkheikki

Jan. 13 (Bloomberg) -- Finland’s economy contracted for the first time in three and a half years in October on waning global demand for exports.

The economy shrank an annual 1.6 percent, adjusted for the number of working days, compared with revised growth of 0.8 percent in September, Helsinki-based Statistics Finland said on its Web site today.

“It’s absolutely clear that growth has stopped,” said Pasi Sorjonen, an economist at ETLA research institute in Helsinki. “The trend is now much bleaker than a couple of months ago.”

While the Nordic nation has so far managed to stave off the recession the euro area entered in the second quarter of last year, its economy will contract 0.5 percent this year as the global credit crunch undermines demand for exports, the Bank of Finland said on Dec. 9. Just three months earlier the central bank had forecast growth of 1.3 percent for this year.

Companies ranging from papermaker UPM-Kymmene Oyj to steelmaker Rautaruukki Oyj and container-lifting gear company Cargotec Oyj have announced job cuts or temporarily suspended workers as demand tumbles. Unemployment may climb to 8 percent this year, according to Tapiola Bank.

Industrial production slumped 10.1 percent in November, the biggest decline in 17 years, Statistics Finland reported on Dec. 31.

“Our economy is facing a threat from the outside,” Prime Minister Matti Vanhanen said on Dec. 31. “The clouds over the Finnish economy will not clear until the international economy resumes an upward trend.”

This is the second time the statistics office has used the working-day adjusted number as their headline rate for gross domestic product.

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net; Juho Erkheikki in Helsinki at jerkheikki@bloomberg.net.