The Economy of Finland Aug 30st 2013, Finnish Ministry of Foreign Affairs Presentation for the American Fulbright Grantees Petteri Rautaporras, Economist at the Federation of Finnish Technology Industries
Introduction to the Economy of Finland Economic history; how did we get here? Economic development International comparisons Where are we now? Current economic situation Production structure Where are we going? Threats and possibilities Finnish technology industries 30.8.2013 2
Wealth and Health by Gapminder.org Gapminder is a non-profit venture a modern museum on the Internet promoting sustainable global development and achievement of the United Nations Millennium Development Goals. Hans Roling, Professor of International Health at Karolinska Institutet Unveiling the beauty of statistics for a fact based world view www.gapminder.org 30.8.2013 3
History and international comparison
Production Volume Development in Finland Annual GDP Growth in Constant Prices 25% 20% 15% 10% 1809 1917 Autonomous Grand Duchy of Finland (Russia) 1917-18 Finnish Civil war 1939 1945 World War II 1973 First Oil crisis Strong industrial growth 1979 Second Oil crisis 2008 Global financial crisis 2002 Finland adopted the euro (Fixed since 1999) 1989 1991 Fall of the USSR 5% 0% -5% 1899 1917 Russification Urbanization Emigration IT bubble -10% -15% -20% 1900 1905 1917 Republic of Finland 1581 1808 Grand Principality of Finland (Sweden) 1910 1915 1920 1925 1929 ~ 1939 The Great Depression 1930 1935 1940 1952 Last war reparations paid to the USSR (Total reparations were 4,8 Bill. in 2009 Euros) 1945 1950 1955 1960 1965 1970 1975 Real GDP growth Average (1900-2011) 1980 1985 1990 s Depression 1990 1995 Finland joins the EU 1995 2000 2005 2010 2015 Source: Statistics Finland, Various historical sources 30.8.2013 5
Changes in the Production Structure Production structure in Finland and the US 70% Share of GDP 60% 50% 40% 30% 20% 10% 0% 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 US, Agriculture US, Total industry FIN, Agriculture FIN, Total industry Source: Statistics Finland, Bureau of Economic Analysis 30.8.2013 6
Changes in the Production Structure in Finland 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Primary production Secondary production Services 30.8.2013 7
Production Volume Development Real GDP Index 4 000 1900 = 100 3 500 3 000 2 500 2 000 1 500 1 000 500 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Finland USA Source: Statistics Finland, Bureau of Economic Analasys, IMF 30.8.2013 8
GDP and GDP per Capita in 2012 GDP, Billion USD in current prices Rank Country 2012 1 United States 15 684,8 2 China 8 227,0 3 Japan 5 964,0......... 36 Philippines 250,4 37 Finland 250,1 38 Greece 249,2......... 182 Marshall Islands 0,18 183 Kiribati 0,17 184 Tuvalu 0,04 Share of the world GDP (PPP) Rest of the World 66,3 % China 11,5 % USA 21,9 % Finland 0,3 % GDP (PPP) per capita, USD Rank Country 2012 1 Qatar 102 211 2 Luxembourg 79 785 3 Singapore 60 410......... 6 Hong Kong 51 494 7 United States 49 922 8 UAE 49 011......... 21 UK 36 941 22 Finland 36 395 23 Japan 36 266......... 182 Burundi 625 183 Zimbabwe 558 184 Congo, DR 369 Source: IMF / World Economic Outlook April 2013 30.8.2013 9
International Rankings Economy Year Finland USA China Out of # Globalization Index 2013 16 34 73 207 Index of Economic Freedom 2013 16 10 136 177 The Global Enabling Trade Report 2012 6 23 56 132 The World Competitiveness Scoreboard 2013 20 1 21 60 Global Competitiveness Report 2012-13 3 7 29 144 Economist Digital economy rankings 2010 4 3 56 70 Standard of Life Year Finland USA China Out of # Children's Index Rank 2012 19 31 78 170 Environmental Performance Index 2012 19 49 116 132 Global Peace Index 2012 9 88 89 158 Mother's Index Rank 2012 6 25 58 170 Women's Index Rank 2012 6 19 57 170 Worldwide Press Freedom Index 2011-12 1 47 174 179 Corruption Perceptions Index 2011 2 24 75 183 Economist Index of Democracy 2011 9 19 141 167 Human Development Index (inequality-adjusted HDI) 2011 11 23 70 139 Legatum Prosperity Index 2011 7 10 52 110 Life expectancy at birth (CIA) 2011 28 34 79 191 The Global Gender Gap Report 2011 3 17 61 135 World Audit - Corruption Rank 2011 2 18 56 150 World Audit - Democracy Rank 2011 1 15 121 150 World Audit - Press Freedom Rank 2011 1 10 139 150 Newsweek's Worlds Best Countries 2010 1 11 59 100 Happy Planet Index 2009 70 105 60 151 Programme for International Student Assessment (PISA) 2009 3/6/2 16/35/23 1-30/1-12/1-18 57 UN Gini - Income equality 2009 7 77 93 142 Economist Quality-of-life index 2005 12 13 60 111 Source: Various 30.8.2013 10
Income Distribution and Poverty Share of population with below 40 per cent of the current median income 30 % 25 20 15 10 5 0 Denmark Czech Republic FINLAND Hungary Luxembourg Iceland France Ireland Austria Belgium Slovak Republic Netherlands Sweden Slovenia Germany New Zealand Norway Switzerland Greece Estonia Poland United Kingdom OECD - Average Italy Canada Portugal Australia Spain Korea Turkey Japan Chile UNITED STATES Israel Mexico After taxes and transfers Before taxes and transfers Source: OECD 30.8.2013 11
Manufacturing Labour Costs in 2010 Average labour cost per hour in manufacturing industry 45 40 EUR/h 35 30 25 20 15 10 5 0 NOR LCS CHE BLS BEL SWE DNK FRA DEU LCS LCS LCS LCS LCS FIN LCS NLD AUT AUS LCS LCS BLS IRL LCS LUX CAD USA LCS BLS BLS ITA LCS JPN BLS ESP GBR GRC NZL LCS LCS LCS BLS ISR BLS SGP BLS SVN LCS CYP KOR MLT PRT ARG CZE LCS BLS LCS LCS BLS LCS SVK LCS BRA BLS EST HUN POL TWN LTU LCS LCS LCS BLS LCS LVA LCS MEX ROU BGR PHL BLS LCS LCS BLS EUR/h 41,4 40,1 39,7 36,9 34,6 34,0 33,0 31,4 31,4 31,2 30,6 29,9 29,1 26,9 26,2 25,8 24,1 21,6 21,0 16,7 15,5 15,2 14,4 13,5 13,0 12,5 11,8 10,5 9,5 9,3 7,7 7,6 7,2 6,8 6,4 6,3 5,1 5,1 4,7 4,0 2,6 1,4 Source: Eurostat, Bureau of Labour Statistics 30.8.2013 12
Investments in Research and Development GDP share of R&D investments 5,0 % 4,5 % 4,0 % 3,5 % 3,0 % 2,5 % 2,0 % 1,5 % 1,0 % 0,5 % GDP share of R&D Israel Finland South Korea Sweden Japan USA Germany France EU27 UK China Czech Republic Russia Hungary Poland 0,0 % 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 EU27 Czech Republic Germany France Hungary Poland Finland Sweden UK Russia USA China Japan South Korea Israel Source: Eurostat, OECD 30.8.2013 13
Finnish economy today
Production Volume Development in Finland Volume index of output 24 000 22 000 1900 = 100 20 000 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Technology industry Total industry Real GDP Source: Statistics Finland 30.8.2013 15
Unemployment Annual unemployment rate 18 16 % 1990 s Depression 14 12 10 Financial crisis 8 6 IT Bubble 4 2 0 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Finland USA Source: Statistics Finland, Bureau of Labor Statistics, IMF 30.8.2013 16
Finnish Exports of Goods Industry shares of Finnish exports of goods 100% 90% 80% 70% 60% 50% 40% % Other exports of goods Chemical industry Forest industry Textile and clothing industry Food industry Technology industry 30% 20% 10% 0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2012 Electronics and the Electrotechnical Industry Mechanical engineering Metals industry Source: Board of Customs 30.8.2013 17
Technology Industry Exports Exports of goods and services 55 50 Bill. 45 40 35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Export of Goods Export of Services Source: Statistics Finland 30.8.2013 18
Technology Industry Export of Goods from Finland by Area in 2012 Total goods exports 26,5 billion euros* North America 2.2 billion 8.2 % Western Europe 12.0 billion 45.2 % Central and Eastern Europe 5.3 billion 20.2 % South and Central America 1.5 billion 5.5 % Africa 0.8 billion 3.0 % the Middle East 0.6 billion 2.3 % Asia 4.1 billion 15.6 % *) In addition to goods exports the sector exports services worth about 12 billion euros. Source: National Board of Customs, Statistics Finland 30.8.2013 19
Growth prospects for year 2013 North-America USA +1,9 % Canada +1,7 % Central- and South-America Brazil +3,0 % Mexico +3,2 % Argentina +2,6 % Venezuela +0,9 % Columbia +4,0 % Chile +5,0 % Peru +6,0 % GDP 2013/2012, % Western-Europe Germany +0,6 % UK +0,8 % France -0,2 % Italy -1,4 % Spain -1,6 % Netherlands -0,8 % Switzerland +1,2 % Sweden +1,4 % Belgium +0,1 % Norway +2,5 % Austria +0,7 % Denmark +0,6 % Greece -5,0 % Finland +0,2 % Portugal -2,7 % Irland +0,8 % Africa South-Africa +2,7 % Nigeria +6,8 % Egypt +2.0 % Central- and Eastern-Europe Russia +2,9 % Turkey +3,9 % Poland +1,2 % Czech Rebublic -0,3 % Romania +2,0 % Ukraine +0,8 % Unkari 0,0 % Slovakia +0,9 % Slovenia -1,5 % Lithuania +3,3 % Latvia +3,7 % Estonia +2,9 % Middle East Saudi Arabia +4,5 % Israel +3,4 % Asia China +7,8 % Japan +1,4 % India +6,1 % Australia +2,6 % South-Korea +2,8 % Indonesia +6,2 % Taiwan +3,3 % Thailand +5,0 % Malaysia +5,2 % Singapore +2,2 % New Zealand +2,7 % Philippines +6,1 % Vietnam +5,4 % Lähde: Consensus Forecasts, May 2013 30.8.2013 20
Technology Industry Personnel Personnel in Finland and abroad 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (30.6) Personnel in Finland Personnel in subsidiaries abroad Source: Statistics Finland, The Federation of Finnish Technology Industries labour force survey 30.8.2013 21
Technology Industry Personnel in Subsidiaries Abroad by Country in 2011 Other Countries, 75 600, 23 % China, 65 800, 20 % hungary, 6 400, 2 % Russia, 6 800, 2 % Italy, 6 900, 2 % India, 40 400, 12 % France, 7 200, 2 % UK, 9 100, 3 % Poland, 10 400, 3 % Mexico, 16 900, 5 % Sweden, 18 200, 6 % Brazil, 20 400, 6 % USA, 21 100, 7 % Germany, 21 200, 7 % Source: The Federation of Finnish Technology Industries labour force survey 30.8.2013 22
Technology Industry Personnel in Subsidiaries Abroad 220 000 200 000 180 000 Western Europe and North America 160 000 140 000 120 000 100 000 Asia, Oceania, Eastern Europe and Latin America 80 000 60 000 40 000 The Middle East and Africa 20 000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: The Federation of Finnish Technology Industries labour force survey 30.8.2013 23
Finnish economy tomorrow
Finnish Exports up to EUR 20 30 Billion Short of Annual Target Level 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 Export of goods and services by quarter, billion euros, at current prices Exports needed to avoid extra running into debt in the public sector Exports, realized Working day and seasonally adjusted index. Latest information January-March 2013. Source: Statistics Finland 30.8.2013 25
National dept* is rising fast because of the drop in the level of export and expansion of public sector 95 90 85 80 75 70 65 60 55 50 45 Billion euro, Monthly balance *) Respectively debt of municipalities was 7.1 billion at the end of year 2005 and 12.5 billion at the end of year 2012. Source: State Treasury 30.8.2013 26
Turnover of the Technology Industry in Finland 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 2005=100 Change: 1-5,2013 / 1-5,2012, % 2005 2006 2007 2008 2009 2010 2011 2012 2013 Metals industry -9 % Information technology +11 % Mechanical engineering -8 % Electronics and electrotechnical industry -14 % Consulting engineering +2 % Seasonally adjusted turnover index, latest information 5/2013. Share of total turnover in 2012: mechanical engineering 41 %, electronics and electrotechnical industry 26 %, metals industry 14 %, information technology 11 %, consulting engineering 8 %. Source: Statistics Finland
Breakdown of World Economic Growth in 2013 (forecast) with the Export Shares of Technology Industry 10 9 8 7 6 5 4 3 2 1 0-1 GDP growth in 2013, % North America Average growth: +1,9 % Western Europe Japan China 0 10 20 30 40 50 60 70 80 90 100 India Rest of Asia Russia Rest of Eastern Europe The width of the bar indicates the export share of technology industry from Finland in 2012, % Brazil Rest of Lat. Am. Middle East, Africa Source: IMF, Board of Customs 30.8.2013 28
Situation and Outlook The Finnish industry can t compete with prices but with quality Instead of producing more we need to do things better Growth prospects in the developed countries are low at best Companies need to expand to growing markets Production structure and product portfolio needs to be diversified Ageing population poses constraints to State budget and labour supply Small and medium size companies 30.8.2013 29
Long-Term Outlook and Challenges Global Structural Change Set to Continue Apace Industrial production and services will relocate to rapidly developing economic areas Strong growth, large markets, cheap labour and increasing expertise will increase the attractiveness of these regions. Competition over Skills and Raw Materials Set to Increase Due to an increase in retirement, the sector s annual recruitment need in Finland will rise considerably in the coming years. The availability of reasonably-priced energy also threatens to become an investment bottleneck in Finland Combating Climate Change A challenge as costs are set to grow faster than in competitor countries An opportunity for new environmental and energy technologies 30.8.2013 30
Finnish Technology Industry
The Technology Industry the Most Important Sector in Finland 55% of total Finnish exports. 80% of private-sector R&D investment. Some 290,000 employed directly in the sector, a good 720,000 employed in total, equalling about 30% of the entire Finnish labour force. The Federation of Finnish Technology Industries has some 1,600 member companies. 30.8.2013 32
The Technology Industry in Finland Electronics and Electrotechnical Industry Data communications equipment, instruments, electrical machinery Turnover (2012) 16.3 billion euros Personnel (30.6.2013) 47 300 Metals Industry Steel products, non-ferrous metals, castings Turnover (2012) 9.4 billion euros Personnel (30.6.2013) 14 200 Mechanical Engineering Machinery, metal products, vehicles Turnover (2012) 27.9 billion euros Personnel (30.6.2013) 131 100 Consulting Engineering Expertise for construction industry and infrastructure Turnover (2012) 5.2 billion euros Personnel (30.6.2013) 42 900 Information Technology IT services, applications and programming Turnover (2012) 6.8 billion euros Personnel (30.6.2013) 53 100 30.8.2013 33
Technology Is Everywhere 30.8.2013 34
The Technology Industry is also about Services 30.8.2013 35
Welcome to Helsinki! Apparently not a bad place to be The Economist Intelligence Unit's World's Most Liveable Cities 2012 Rank City Country 1 Melbourne Australia 2 Vienna Austria 3 Vancouver Canada 4 Toronto Canada 5 Calgary Canada 6 Adelaide Australia 7 Sydney Australia 8 Helsinki Finland 9 Perth Australia 10 Auckland New Zealand 12 Osaka Japan 12 Geneva Switzerland 16 Paris France 18 Tokyo Japan 34 Washington DC USA 43 Los Angeles USA 55 London UK 56 New York USA Monocle's Most Liveable Cities Index 2013 Rank City Country 1 Copenhagen Denmark 2 Melbourne Australia 3 Helsinki Finland 4 Tokyo Japan 5 Vienna Austria 6 Zürich Switzerland 7 Stockholm Sweden 8 Munich Germany 9 Sydney Australia 10 Auckland New Zealand 11 Hong Kong China 12 Fukuoka Japan 13 Kyoto Japan 14 Paris France 15 Singapore Singapore 16 Hamburg Germany 17 Honolulu USA 18 Madrid Spain 19 Vancouver Canada 20 Berlin Germany 21 Barcelona Spain 22 Amsterdam Netherlands 23 Portland USA 24 San Francisco USA 25 Düsseldorf Germany Source: Economist Intelligence Unit, Monocle 30.8.2013 36