Finnish Economy and Society Visit of Headteachers Penna Urrila, Senior Economist Confederation of Finnish Industries EK

2 EK/Eng/ Main Topics 1.Presentation of EK 2.Finnish Economy history and background Economic Structures Outlook for the Future 3.Finnish Society and Political Situation

Finnish Economy

4 EK/Eng/ Finland in the Global Economy Population GDP Industial production Exports Exports of pulp and paper Exports of electronics industry Production of mobile phones

5 EK/Eng/ GDP by Sector, (%)

6 EK/Eng/ Employment by Sector, %

7 EK/Eng/ Finnish Exports

8 EK/Eng/ GDP, index 1995 = 100 Source: OECD

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11 EK/Eng/ Industrial production, index 1990 = 100

12 EK/Eng/ Industrial production, index 1990 = 100

13 EK/Eng/ Growth of Telecommunications Industry

14 EK/Eng/ Stock of Direct Investments, EUR billion

15 EK/Eng/ Finnish Exports of Goods in 2005 (total 52,4 bill. EUR)

16 EK/Eng/ Finnish Exports by Country

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18 EK/Eng/ month Interest Rates

19 EK/Eng/ Consumer Prices

20 EK/Eng/ Unemployment

21 EK/Eng/ Public Sector Balance, % of GDP

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24 EK/Eng/ R&D expenditure, EUR billion

25 EK/Eng/ R&D investments in some countries Percentage of GDP Israel Sweden FINLAND Japan Iceland South Korea USA Denmark Germany Austria OECD France Singapore Canada Great Britain Norway China

26 EK/Eng/ Main Economic Forecasts (ETLA)

Some structural challenges for the future

28 EK/Eng/ High taxation Finland is a country with high overall taxation Tax revenues rely heavily on direct taxation –share of direct taxes (incl. social security contributions) is the highest in EU-25 countries Some tax changes have been made in the last few years: –State income tax has gradually been lowered in all income groups –Tax on net wealth was abolished from –Corporate tax reform in 2004: corporate tax rate down from 29 % to 26 % but dividends are subject to double taxation Will the international tax competition become more severe and how can Finland respond to it?

29 EK/Eng/ Source: OECD

30 EK/Eng/ Tax Rates on Wage Income 2006 Taxes, social security contributions of employees and basic tax allowances.

31 EK/Eng/ Ageing population Finnish population is growing slowly: population estimate 5,25 million in 2005 ( persons compared to 2004) –About 50 % natural increase, 50 % net immigration ”Baby-boom generation” (born in ) is soon retiring –Current age structure relatively good but it will deteriorate dramatically –Finland will face the problem years earlier than many other countries –Workforce will turn down before 2010: serious economic implications Solutions?? –Reducing unemployment, longer working time, increasing immigration? –Pension reform in 2004 not enough in the long run, public sector balance in danger

32 EK/Eng/ Summary Finnish economic development has been a success story in the 20 th century –Late but rapid structural change from agriculture into industry and services –Fast recovery from the deep crisis in the early 1990s: electronics industry! –GDP/capita above EU-15 average Current economic situation is relatively good –Despite a slowdown in early 2000s, Finnish growth figures are above EU average –Public sector in balance, low inflation but unemployment still a problem –Also the short-term outlook is favourable: positive expectations Long-term growth potential still uncertain –Ageing population will be a big challenge –Can Finland match the global competition in the future, too?