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UPDATE 1-Finland may need more spending cuts amid slow recovery, finance minister
December 22, 2016 / 4:15 PM / a year ago

UPDATE 1-Finland may need more spending cuts amid slow recovery, finance minister

(Adds finance minister comments, background)

HELSINKI, Dec 22 (Reuters) - Finland’s economy has moved out of recession but the government may still need to cut public spending by a further 1 to 2 billion euros if growth doesn’t pick up by next spring, Finance Minister Petteri Orpo said on Thursday.

A finance ministry forecast showed that economic growth in the Nordic country would accelerate this year, but slow down again in the next two years due to weak export outlook and structural problems in the labour market.

Finland’s centre-right government is on track to make 4 billion euros ($4.19 billion) of spending cuts by 2019 and, with reforms, it aims to save 10 billion by 2030. Orpo did not say when the additional 1 to 2 billion euros in cuts might come.

“The recession is over, but this growth rate is not enough to reach the government programme target of curbing our debt and zero deficit by 2021”, Orpo told Reuters.

The euro zone’s northernmost member is slowly returning to growth after a decade of stagnation sparked among other things by a decline of Nokia’s former phone business and a recession in neighbouring Russia.

The finance ministry raised its forecast for this year expecting gross domestic product to grow by 1.6 percent, up from 1.1 percent, driven by growing private consumption.

For the next two years, the ministry kept its forecast largely unchanged, expecting growth of 0.9 percent in 2017 and 1.1 percent in 2018.

Despite the slow recovery, the government has so far deferred plans for more spending cuts while it waits for its key labour reform to kick in.

The finance ministry said the reform, which cuts workers’ benefits and increases working hours, will improve Finland’s competitiveness in terms of unit labour costs in the long run, but will weaken both private and public consumption next year.

Thursday’s forecast does not include effects of the health care reform the government agreed on Wednesday, which aims to curb future health care costs by around 3 billion euros as Finland struggles with an ageing population. ($1 = 0.9540 euros) (Reporting by Tuomas Forsell and Jussi Rosendahl; Editing by Tom Heneghan)

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