Economic analysis
Finland

Finland

Population 5,4 million
GDP per capita 42413 US$
A2
Country risk assessment
A1
Business Climate
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Synthesis

major macro economic indicators

  2014 2015  2016 (e) 2017 (f)
GDP growth (%) -0.6 0.3 1.4 1.3
Inflation (yearly average) (%) 1.2 -0.2 0.3 0.8
Budget balance (% GDP) -3.2 -2.8 -2.7 -2.5
Current account balance (% GDP) -1.1 -0.4 -0.7 -0.6
Public debt (% GDP) 60.2 63.6 67.1 69.6

 

(f) Forecast

STRENGTHS

  • Prudent economic policies
  • Skilled workforce and favourable business climate
  • Cutting-edge industries
  • High standard of living

WEAKNESSES

  • High vulnerability to the international situation
  • Industrial crisis and loss of competitiveness
  • Dependence of the Finnish banking sector on the Swedish and Danish financial sectors
  • Ageing population

Risk assessment

Timid recovery of activity, supported by private investment

After sluggish growth in 2015, the economy saw a slight recovery in 2016, thanks to private consumption and dynamic investment. In 2017, growth should remain moderate, supported by growth in private investment and exports. Indeed, the industrial sector (25% of GDP) would see a progressive recovery through investment in energy as well as in the forestry and shipbuilding industries. These industries would benefit from a more dynamic foreign demand and the government's policy to improve business competitiveness. Low interest rates favour residential investment and construction, and growth will also be observed in the services sector (75% of employment).

Moreover, private consumption would be less dynamic than in previous years, limited by an agreement between social partners providing for slower growth in wages until the end of 2017. In addition, the still high level of unemployment (8.8%), fiscal austerity and the household debt burden (120% of disposable income) would continue to hamper growth in private consumption. However, the purchasing power of households would improve to the extent that real wages would see a slight increase, in a context of still modest inflation (albeit slightly increasing). Dependence on exports in the economy (37% of GDP) and demand from its main trading partners (Russia, Germany and the Nordic countries) could affect the business activity in case of a slowdown in demand in these countries.

 

Public funding remain contained despite an industrial stimulus policy

In 2017 the government's priority will remain focused on the fight against unemployment and the revival of the industrial sector, which continues to suffer from low competitiveness. A Competitiveness Pact was signed with social partners in late 2016 with the aim of reducing unit labour costs by 4% in 2017. The main measures concern the extension of the annual working time (additional 24 hours without wage compensation), a transfer of a portion of employer charges to employee contributions and wages, which would increase less rapidly. The authorities have nevertheless granted households a reduction in income tax in order to offset rising social security contributions. In addition, the government would invest more in infrastructure, especially in transport. This policy would be funded by budget cuts in education and in R&D and by the reform of the social security system which would see this power transferred to local institutions (economies of scale). Thus, the budget deficit would still be below 3% but public debt would continue to rise slightly, while remaining relatively low compared to other countries in the eurozone.

Meanwhile, the implementation of this policy would have a positive impact on the current account, which would be close-to-balance. Exports would be improve especially in the pharmaceutical, petrochemical and in the forest industry, driven by better competitiveness and an increase in orders. Furthermore, the electronics sector would benefit from the recovery (early 2017) on the smartphones market observed in the Nokia brand, purchased from Microsoft by a Finnish company. Nevertheless, the increase in imports would halt the improvement observed in the current account in 2017, due to a more dynamic domestic demand and a moderate increase in oil prices.

 

A coalition government weakened by unpopular measures

Finnish voters entrusted power to the Centre Party in the parliamentary elections held in April 2015. The coalition government, which also includes the Finns Party (far right) and the National Coalition, the centre-right party, holds a comfortable majority in parliament (124 seats out of 200). However this coalition is weak, insofar as the withdrawal of one of the three parties would cause a loss of majority for the government. Moreover, the opposition parties have been strengthened following the unpopularity of the Competitiveness Pact reforms, which aim to reduce unit labour costs and improve competitiveness. The Social Democratic Party even came out ahead according to a poll conducted in October 2016. The government will be judged on the results of its reform plan, particularly in terms of unemployment.

The business environment remains very favourable as the country ranks 13th out of 190 in the latestDoing Businessreport published by the World Bank, with particularly remarkable performance in insolvency settlement.

 

 

Last update : January 2017

Payment

Bills of exchange are not commonly used in Finland because they signal the supplier's distrust of the buyer. A bill of exchange primarily substantiates a claim and constitutes a valid acknowledgment of debt.

 

Cheques, also little used in domestic and international transactions, but only constitute acknowledgement of debt. However, cheques that are uncovered at the time of issue can result in the issuers being liable to criminal penalties. Moreover, as cheque collection takes a particularly long time in Finland (twenty days for domestic cheques or cheques drawn in European and Mediterranean coastal countries, 70 days for cheques drawn outside Europe), this payment method is not recommended.

 

Conversely, SWIFT bank transfers are increasingly used to settle domestic and international commercial transactions. Finns are familiar with this efficient method of payment. When using this instrument, sellers are advised to provide full and accurate bank details to facilitate timely payment, while it should not be forgotten that the transfer payment order will ultimately depend on the buyer's good faith. Banks in Finland have adopted the SEPA (Single Euro Payments Area) standards for EUR-denominated payments. 

 

Debt collection

Amicable phase

The goal of the amicable phase is to reach a voluntary settlement between the creditor and debtor without begin legal proceedings. Finnish legislation obliges creditors to begin the amicable phase amicable phase via letters, followed up as necessary with a final demand for payment by recorded delivery or ordinary mail. This demand for payment asks the debtor to pay the outstanding principal increased by past-due interest as stipulated in the contract.

 

In the absence of an interest rate clause in the agreement, interest automatically accrues from the due date of the unpaid invoice at a rate equal to the Central Bank of Finland's (Suomen Pankki) six-monthly rate, calculated by reference to the European Central Bank’s refinancing rate, plus seven percentage points.

 

The Interest Act (Korkolaki) already required debtors to pay up within contractually agreed timeframes or become liable to interest penalties.

 

Since 2004, the ordinary statute of limitations for Finnish contract law is three years.

 

Legal proceedings

Fast-track proceedings

For clear and uncontested claims, creditors may use the fast-track procedure, resulting in an injunction to pay (suppea haastehakemus). This is a simple written procedure based on submission of whatever documents substantiate the claim (invoices, bills of exchange, acknowledgement of debt, etc.). The court sets a time limit of approximately two weeks to permit the defendant to either respond to or oppose the petition. In addition, this fast track procedure can also be initiated electronically for cases of undisputed claims. The presence of a lawyer, although commonplace, is not required for this type of action.

 

Ordinary proceedings

Ordinary legal action usually commences when amicable collection has failed. A written application for summons must be addressed to the registry of the District Court, which then serves the debtor with a Writ of Summons. The debtor is given approximately two weeks to file a defence.

 

During the preliminary hearing, the court bases its deliberations on the parties’ written submissions and supporting documentation. The court then convokes the litigants to hear their arguments and decide on the relevance of the evidence. During this preliminary phase, and with the judge’s assistance, it is possible for the litigants to resolve their dispute via mediation and subsequently protect their business relationship.

 

Where the dispute remains unresolved after this preliminary hearing, plenary proceedings are held before the court of first instance (Käräjäoikeus) comprising between one and three presiding judges, depending on the case’s complexity. During this hearing, the judge examines the submitted evidence and hears the parties’ witnesses. The litigants then state their final claims, before the judge delivers the ruling – generally within fourteen days.

 

The losing party is liable for all or part of the legal costs (depending on the judgement) incurred by the winning party. The average time required for obtaining a writ of execution is about twelve months. Undisputed claims in Finland can normally last from three to six months. Disputed claims and the subsequent legal proceedings can take up to a year.

 

Commercial cases are generally heard by civil courts, although a Market Court (Markkinaoikeus) located in Helsinki has been in operation as a single entity since 2002, following a merger of the Competition Council and the former Market Court.


Enforcement of a Court decision

 

A judgment is enforceable for fifteen years as soon as it becomes final. If the debtor fails to comply with the judgment, the creditor may have it enforced by a bailiff, who will try to obtain an instalment agreement with the debtor, or enforce it through a seizure of assets.

 

For foreign awards, since Finland is part of the European Union (EU), it has adopted enforcement mechanisms applicable to court decisions issued by other EU members, such as the EU Payment Order and the European Enforcement Order. For judgments issued by non-EU members, the issuing country must be part of a bilateral or multilateral agreement with Finland.

 

Insolvency proceedings

Out-of-Court proceedings

Finnish law provides no specific rules for out-of-court settlements. Negotiations between creditors and debtors are made informally. If an agreement is reached, it must still be validated by the court.

 

Restructuring proceedings

The goal of restructuring is to allow an insolvent company to remain operational through administration, with the view that if the company is able to continue its business, it will be able to repay a larger part of its debts than would have been possible in the case of bankruptcy of the company. The commencement of these proceedings triggers an automatic moratorium, providing the company with protection from its creditors.

 

The board of directors maintains its power of decision but the receiver is entitled to control certain aspects of the company’s operations, including the creation of new debts and overseeing transfers of ownership.

 

Liquidation

When debtors are unable to pay their debts when due and this inability is not temporary, they are placed into liquidation. Upon acceptance of a liquidation petition by the court, the debtor is declared bankrupt. A receiver is appointed, and a time limit is established for any creditors to present their claims. The receiver then establishes a proposed distribution scheme, whilst creditors supervise the selling of the estate and the distribution of the sales’ proceeds.

Insolvency trend Finland
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