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Finland sinks into eurozone’s deepest recession

Helsinki — Finland has sunk into the deepest recession in the eurozone after official data published Tuesday showed that its economy shrank by a record 9.4 percent in the second quarter on a 12-month comparison.

The drop is the Nordic country’s biggest annual decline since comparable figures began to be compiled in 1990 and is worse than the 7.6 percent year-on-year drop registered in the first three months of this year.

"The figures were horrendous," OP-Pohjola Group chief economist Anssi Rantala told AFP, pointing out that Finland’s economy is heavily reliant on exports which have been hit by the heavy slump in global demand.

Economists quoted by the Kauppalehti business daily had predicted negative growth of 7.3 percent on a 12-month basis in the second quarter.

Statistics Finland, the official data agency, said the economy shrank by 2.6 in the second quarter, compared to a revised figure of minus 3.0 in the first, indicating only a very slight easing of the recession.

Finland’s growth figures are the worst in the 16-nation eurozone, the term used to describe the countries that use the single currency, although Ireland’s second quarter data expected later this month could be even worse.

Among fellow European Union members, only the economies of Estonia, Latvia and Lithuania saw deeper negative growth than Finland in the second quarter.

France and Germany officially came out of recession in the second quarter and official EU data shows the gross domestic product for the whole 27-member bloc shrank by 0.2 percent when compared to the first quarter.

Explaining the decline in Finland, Pentti Forsman, an economist at Bank of Finland, told AFP that exports now account for around 35 percent of the Finnish economy from around half last year and will continue to fall into 2010.

From April to June this year, exports fell 30.2 percent on a 12-month basis, according to Statistics Finland data, while investments dropped 11.7 percent.

Falling exports mean companies have been forced to cut jobs to match the sliding demand.

In turn, rising unemployment means individuals are cutting back on spending — household consumption was down 3.4 percent in the second quarter.

"The fall in exports has lowered the investment activity and lowered consumers incomes" as companies need fewer employees to make fewer products, explained Reijo Mankinen, an economist with the ETLA research institute.

Finland’s neighbours are also feeling the effects of the turmoil — the economies of Estonia, Lithuania and Latvia are shrinking by some 15 percent.

Russia, its top trading partner along with Germany, has also seen negative growth of around 10 percent year-on-year.

Finnish companies are feeling the pinch as a result.

Nokia has seen a quarter of its revenues wiped out, while paper producers Stora Enso and UPM-Kymmene are slashing production and jobs owing to the decline in newspaper sales and advertising.

Handelsbanken’s Tuulia Astlund and ETLA’s Mankinen however said that they believed the economy had now bottomed out and expected better growth figures in the third quarter.

Finland’s finance ministry, which earlier said the economy would shrink by 6.0 percent this year, is set to publish new forecasts on September 15.