August 6, 2012 / 11:19 AM / in 5 years

Finland risks recession, says finance minister

HELSINKI (Reuters) - Finland could slip back into recession next year if the global economic slowdown persists, the country’s finance minister said, sharply undercutting a June forecast for growth of 1.2 percent.

GDP should expand between zero and 1 percent next year, Jutta Urpilainen said.

But the economy might shrink and whether this occurred “depends very much on what happens in the international economy.” A Europe-wide slump looked likely, she told reporters.

Finland is trying to underpin economic growth while also keeping its fiscal house, hoping to preserve its status as one of a select band of European countries with a full set of AAA debt ratings from the three main credit agencies.

The country exited recession in the second quarter of 2010.

Urpilainen said further austerity was unlikely next year beyond the fiscal plan the government set in March, in which it aims to cut the budget by 2.7 billion euros ($3.3 billion)between 2013-2016 via spending cuts and tax hikes.

It also decided to raise VAT from next January to 24 percent from 23 percent.

“It is important that those decisions are implemented,” Urpilainen said.

The government will discuss the 2013 budget proposal being drafted by Urpilainen later this month.

Finland has one of the strongest balance sheets in Europe with public debt at around 49 percent of gross domestic product at the end of 2011, and the government ran a budget deficit of just 0.8 percent last year.

But it also faces with an ageing population and prospects of slow growth, as flagship technology firm Nokia and traditional sectors like paper struggle to compete with global rivals, explaining why the government wants to tighten the finances while it can.

June, the finance ministry forecast economic growth of 1.0 percent this year and 1.2 percent next.

Reporting By Terhi Kinnunen, Writing by Tarmo Virki; Editing by John Stonestreet

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