Finland is in its longest recession for two decades, official data showed on Thursday, the same day as the ECB announced interest rate cuts to stimulate the European economy. Finland's output contracted by 0.4 percent in the first quarter, which was the eighth in a row without growth. Once considered among eurozone's examples to follow, the Finnish economy has continuously shrunk over the last two years, by 1.4 percent in 2013 and 1.0 percent in 2012.
The unemployment rate rose to 8.5 percent in April and little prospects of a quick recovery, in stark contrast to neighbouring Nordic countries. "It's interesting to see that the former model pupil of the European Union has fallen into difficulties," said Antti Alaja, a researcher at the social democratic Kalevi Sorsa Foundation, commenting on the announcement that the country had entered its eighth consecutive quarter without growth. "Similar countries with the same taxation model, particularly Sweden have done much better." Finland's economy has been hard hit by low household consumption, a decline in the paper and electronic industries, and in recent months trade with its eastern neighbour Russia has been further hit by the weaker rouble exchange rate and the Ukrainian crisis. The coalition government made up of left and right parties has introduced a raft of strict austerity measures, but despite higher taxes and sweeping cuts to welfare payments the national debt has continued to rise - reaching 60 percent of GDP in 2014, the limit set for eurozone countries.
Economists have called for tougher measures to pull the economy out of its slump. "Structural reforms have to be accelerated ... If we want to relaunch the economy we must lower taxes, that will bring dynamism," wrote economist Aki Kangasharju at Nordea bank in a forecast just ahead of the latest macro economic results. The bank, the largest in the Nordic region, no longer believes in the government forecast of a return to growth in 2014, predicting a further 0.5 percent fall in GDP.