Difficult times in commerce will still continue this and next year, estimates the Finnish Commerce Federation. The social contract for the labour market, if reached, would stimulate commerce somewhat. However, in order to succeed, Finland can no longer rely solely on traditional industry; instead, bold economic policy reforms are needed to diversify the economic structure. The social contract for the labour market is not necessarily enough to achieve this.

According to a forecast by the Finnish Commerce Federation, retail sales volume (turnover adjusted for price variance) will continue to decrease this year. The cuts in the public sector finance recorded in the government platform will impair household purchasing power and the employment situation so that the delicate growth expected by the Finnish Commerce Federation will not yet be realised next year.

If the social contract for the labour market were not reached, the actions planned by the government would hit commerce hard. The additional cuts and tax increases amounting to EUR 1.5 billion would eat into the growth of private services without the productivity of work increasing and thus mitigating the effects of economic policy. If the contract already falls through in August, the consequences would start to show next year.

“If the social contract for the labour market falls through now, retail trade will barely reach zero growth only in 2017,” predicts Jaana Kurjenoja, Chief Economist at the Finnish Commerce Federation.

The decline of industrial production and retail trade has also pulled wholesale trade down. For this year, the Finnish Commerce Federation forecasts that the wholesale trade turnover will decrease by 1.5 per cent, but next year, as industrial investments and construction pick up, wholesale trade will also resume slow, 1 per cent growth.

Commitment to the social contract for the labour market would improve the outlook for wholesale trade. The moderate development of unit labour costs would improve the operating conditions of the export industry and wholesale trade servicing it already next year.

“Moreover, if the government platform’s actions to support construction work, wholesale trade may come close to its earlier growth figures as early as in 2017,” Kurjenoja predicts.

Kurjenoja comments that in addition to the social contract for the labour market, the forecast also involves foreign risks, both upward-pulling and downward-pushing ones.

“Development in China may slow down the growth of the world economy as the growth in China is slowing down and there are bubbles hiding in their stock and real estate markets. Instead, the ECB’s stimulating monetary policy, the weak euro and low raw material prices support economic growth.”

Employment in commerce keeps on decreasing

Commerce is the largest employer in the economy, but, in the past few years, employment in the sector has taken a sharp downturn. During the past couple of years, employment has declined by 10,000 persons and, this year, the number of employed persons is expected to decrease by 5,000, mainly in wholesale trade.

“Commerce is operating in the midst of international competition and seeks competitiveness by improving the efficiency of its operations and digitalising them, among other measures. In addition to business cycles, these structural reforms also affect employment in commerce,” says Kurjenoja.

Unemployment, especially among young people, has increased clearly in commerce in recent years. Commerce is the largest employer of young people under 25 years of age and they are the group that is hit hardest by the weak employment development in commerce.

“If youth unemployment becomes structural, it may have long-lasting and serious consequences for both economic growth and entire society in the future. This is an aspect that policy-makers must not forget,” Kurjenoja points out.

The economic structure must be reshaped

The Finnish Commerce Federation considers it important that the social contract for the labour market is reached. If the contract is not reached, tax increases and additional cuts are not the only economic policy option, says Juhani Pekkala, Managing Director of the Finnish Commerce Federation.

“The government has tools for reforming the labour market. In addition, the government may consider relieving taxation instead of tax increases but still keep cuts in public spending in effect. Despite incurring additional debt momentarily, this would give a growth boost to the domestic market and the export industry. This is a better option than having the economy fall into a coma for years,” Pekkala comments.

Pekkala now expects the government to have the courage to perceive the cornerstones of the Finnish economy consisting of other sectors than just traditional industry. As such, internal devaluation does not reshape the economic structure, but it is important to create conditions that enable companies to produce consumer products and services that also sell internationally. The labour market must support this goal.

“Labour market reforms must, first and foremost, seek economic growth and improvement in employment. This requires new thinking and local agreements. The current labour market system has not been able to tackle this challenge,” says Pekkala.

“In addition, we also expect that the government realises the items recorded in its platform, from the reduction of bureaucracy restricting commerce to city planning and opening hours,” Pekkala concludes.

For further information, please contact:

Jaana Kurjenoja, Chief Economist, Finnish Commerce Federation, tel. +358 (0)9 1728 5134, jaana.kurjenoja(at)kauppa.fi

Juhani Pekkala, Managing Director, Finnish Commerce Federation, tel. +358 (0)9 1728 5111, +358 (0)400 419 560, juhani.pekkala(at)kauppa.fi

The Finnish Commerce Federation represents commerce – the largest sector of economic life. Commerce employs around 300,000 persons in Finland. The Federation has around 7,000 member companies and represents both retail and wholesale commerce in industry policy and labour market lobbying. www.kauppa.fi