Wednesday 7 November 2012

Finland: cracks in the facade ?

All good things come to an end. It is a sad, yet uncontested truth. I think that the Finnish tradable sector may have already entered such a phase.

It is no secret that one pillar of the Finnish miracle was the phenomenal growth of the country’s electronics/telecommunication equipment cluster. This was the sector that led the country’s re-industrialization (I’ve talked extensively about that in thepast). There is a classification of manufacturing sectors according to their technological content. You can see which sectors are classified in each segment here. OECD runs some data on that but they are not particularly up to date. So I used sectoral data for the manufacturing sector and constructed these aggregates myself according to the definitions by Eurostat. This is what the following chart shows for the Finnish case. It can be seen that post 2008 the high tech segment, which includes electronics, halved in relative size.


source: Eurostat, own calculations


On the surface everything appears to be just fine, as GDP growth, compared to the mess that Euro Area currently is, is more than satisfactory.


source: Eurostat


Some cracks have started to appear though. 

Export growth for Finland, post the 2009 global trade collapse, has been lackluster. As far as growth of exports per inhabitant, compared to the 2008 levels, are concerned, Finland is the worst performer of the Euro Area 12 countries, lagging behind even Greece. 


source: Eurostat, own calculations
  
What’s more, the country recorded a trade deficit in 2011. This had not happened for a long time, namely since the beginning of the 90s.


source: Eurostat

If one starts digging deeper, the cracks mentioned earlier start to appear much larger.

A great chunk of Finland’s growth this past decade was due to its stellar export performance.


source: Eurostat, own calculations

The most important component of Finnish merchandise exports is the machinery and transport equipment segment.


source: Eurostat

And Telecommunications Equipment accounts for a large part of the overall Machinery and Transport Equipment exports.


source: Eurostat


It seems that besides the collapse in Telecommunications Equipment exports there has been a sizeable decline in other segments too.

If we take a more detailed look at exports of that particular niche we might be able to draw some conclusions.

During the 00’s telecommunications equipment exports stopped growing altogether. After a decline till the mid-00’s they rebounded. At the same time imports of telecommunications equipment spiked too. This could mean that part of the production process was outsourced abroad or delocalized. After the 2009 global trade collapse, imports as well as exports essentially halved. I would be surprised if moving part of processes abroad is not to be blamed for a large part of that.


source: Eurostat

Unfortunately, Eurostat does not publish data concerning Finland’s industrial production in the electronics sector but overall production for the manufacturing sector is lagging all core countries by a wide margin. In crises of the magnitude of the one we entered in 2008, the first sectors to feel the heat are the ones that were struggling all along. European manufacturing was one such sector. 


source: Eurostat, own calculations

It seems that the country’s tradable sector has run into trouble.

There are further cracks in other parts of the Finnish economy but I don’t want to get into that now. My intention was not to produce a report on the overall health of the Finnish economy. The purpose of this post was to highlight the slow undoing of the Finnish miracle and that in this ever-changing world nothing is forever and nothing stays still. Of course the Finns have managed to get over massively-sized shocks in the past and I surely hope they do so this time round too (but this is a different world that we live in now and an incredibly harsh environment)…


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