STOCKHOLM Finland and Sweden compete on almost every issue, and Sweden’s prosperity has always aroused envy in Finland. Right now, the economic indicators are not better for Sweden than for Finland in all respects.
Comparable figures from the EU Commission from the beginning of November reveal that next year will be darker for Sweden than for Finland, both in terms of GDP, i.e. total production, and unemployment. However, the Swedish economy is strong enough to withstand shocks.
In this story, Stockholm University’s professor of economics Markus Jäntti and Professor Emeritus of International Economics Lars Calmfors explain the background of the indicators and the differences between countries.
1. Employment and unemployment
Even outside the huge shopping center, one notices that Swedes’ awareness of the crisis is now strong.
Originally from Armenia Roupina Wannessian know exactly that the employment situation is difficult. She herself has a one-year placement, but her husband is unemployed.
– He is trying to find work, has been in many interviews, but getting a job is not easy.
Sweden’s unemployment rate was 8.8 last year. This year it is estimated to be on par with Finland, i.e. 7.2 percent, but in 2024 it will again be higher than Finland.
Lars Calmfors: I’m not worried that it will rise now for cyclical reasons, but we have a structural problem, i.e. unemployment is high even in good times. It is partly related to people born abroad, whose education level is low and their language skills are often weak. It is a really big challenge how to get them employed. But it’s not related to business cycles, it’s a structural problem.
Markus Jäntti: Downturns are always difficult. But it is good to remember that in modern welfare states, which Sweden and Finland still have, there are significant so-called automatic stabilizers, i.e. for example a rise in unemployment does not cause significant pressure on private consumption, because the majority of those who become unemployed receive some form of unemployment compensation.
2. Rising prices, i.e. inflation
from Solna Mona Enander went to buy supplies for Christmas baking because they were now on sale. He is retired and especially the increase in food prices is felt in his wallet.
– As a pensioner, I’m very worried that money won’t buy anything anymore. The rising cost of food is a particular concern, because everyone has to buy it anyway. The price of electricity has gone up by 50 percent, but we don’t live in a detached house, so it doesn’t affect us so badly.
In Sweden, inflation, i.e. the general rise in prices, is faster than in Finland. This year, Sweden’s inflation rate is estimated to rise to more than eight.
It is the price of electricity that speaks the most. Sweden’s new government announced last week 55 billion kroner (you switch to another service) i.e. 5 billion euros in compensation for households and companies struggling with electricity bills in southern Sweden.
Emeritus professor and researcher at the Institute for Economic Research Lars Calmfors was critical especially of the electricity price compensation proposed during the September elections, but also sees flaws in the model presented now.
– This model better encourages energy saving, but the subsidy amount is too large and it should have been targeted more strictly to low-income earners.
– The amount is now so large that it may force the central bank to raise the interest rate more to curb inflation. The rise in interest rates, on the other hand, means difficulties for mortgage debtors.
Swedish central bank (you switch to another service) on Thursday raised the key interest rate by 0.75 percent and now the interest rate is 2.5 percent since the beginning of December. The increase was already the fourth in a short time.
3. Budget 2023
Sweden’s right-wing government has been in power for a month now. According to Calmfors, it is still impossible to say how Sweden’s economic policy will change.
So far, the change of power from the left to the right can be seen from Calmfors only in climate and environmental policy.
The current government admits that its decisions Sweden’s greenhouse emissions turn to growth (you switch to another service).
In many respects, Sweden’s figures look the same or worse than Finland’s, but the totals of the state’s income and expenditure estimates are different.
Sweden’s next year’s budget (you switch to another service) has been drawn up so that it is 84 billion kroner or 7.6 billion euros surplus. Finland’s next year’s budget (you switch to another service) has a deficit of EUR 8.1 billion.
According to Markus Jänt, the background is the marginal conditions of the state economy agreed after the recession of the 90s, which governments, regardless of color, follow. The most important is the surplus goal beyond the term of government, to which almost all parties are committed.
In Finland, according to Jänti, the emphasis is on the sustainability gap, which is a significantly longer-term project. Another metric that is closely monitored in Finland is the expenditure framework. The problem with stressing expenditure frameworks is that it does not take into account taxes, i.e. income and expenditure, but only expenditure.
– Considering the surplus target as a key indicator instead of the sustainability deficit or spending framework is perhaps a more successful solution. Some people think that Sweden is just being more precise when it comes to public finances, but there is probably no reason to believe that now.
– Yes, I think that to a large extent it’s just a matter of the fact that more successful key figures have been taken as a goal in Sweden and these goals have been internalized on a wider front than in Finland.
Sweden’s public sector debt was 36.3% of GDP last year. The number is half as low as Finland’s 72.4%. The EU Commission estimates that Sweden’s number will decrease and Finland’s will increase in the next few years.
4. Own krone and central bank
At the end of the 90s, Lars Calmfors led the EMU study, the end result of which was that it was not worth it for Sweden to join the monetary union and not to adopt the common currency, the euro.
According to Calmfors, in this world situation, it is difficult to assess whether Sweden, which is drifting into recession, will benefit from its own central bank or its own currency. Markus Jäntti says the same.
But according to Calmfors, Finland would have needed its own central bank and currency in the aftermath of the 2008-09 financial crisis.
According to Calmfors, the Finnish and Swedish economies developed at the same pace until the financial crisis. The aftereffects of the crisis, with the problems of Nokia and the mining and forest industry, hit Finland in a way that was not experienced in Sweden. Part of Finland’s large public debt from those years has also been cancelled.
– When Finland got into the grip of the crisis in 2010, the situation got worse because you didn’t have your own currency. Finland could not lower its costs in relation to other countries through the exchange rate. The only way left was to curb wage costs, and that will take longer.
– A combination of a common currency, the euro, and a major crisis was thus realized in Finland. In Sweden, we had no euro and no crisis. That’s where the development of the countries began to diverge, Calmfors estimates.
You can discuss the topic on Tuesday 29 November. until 11 p.m.