Finland – Low Risk of Worrisome Policy Shift

The unity of Prime Minister Juha Sipilä’s coalition government has been strained of late, as Sipila’s centrist agrarian KESK and its main partner, the conservative KOK, remain at odds over how to restructure the existing municipal system for delivering health and welfare services, with the KESK favoring the establishment of 18 regional councils, and the KOK arguing that there should be no more than 12.

Amid the tussling between the governing partners, the main opposition center-left SDP has consistently claimed the top spot in polls of voter preferences conducted since April, while Blue Reform, the junior partner in the government, is barely registering with voters, and faces the real possibility of losing all 18 of its seats at elections that fall due in April 2019.

Based on the current poll numbers, the likely participants in a center-left government—the SDP, the VIHR, the VAS, and the SFP—would fall short of winning the total of 101 seats required for a bare majority in the Parliament, and the VIHR has slipped a bit of late, following the resignation of party leader Touko Aalto, who has gone on sick leave, citing depression and exhaustion. SDP leader Antti Rinne has ruled out any form of cooperation with the far-right PS, which, in any case, has lost altitude since winning 17.7% of the vote in 2017.

As such, even in the event of a first-place finish for his party, Rinne may struggle to form a viable government unless he can count on at least the informal cooperation of either the KOK or KESK. Such an arrangement would limit the risk of a significant departure from the current economic policy course that might adversely affect the value of assets, as would the likely refusal of the far-left VAS to support such a government.

The budget bill for 2019 projects a narrowing of the general government deficit from 0.7% of GDP in 2018 to 0.1% in 2019, while the public debt-to-GDP ratio dips to 59.1% of GDP, after falling below the EU’s upper limit of 60% of GDP this year. Real GDP growth is forecast to ease only slightly, to 2.6%, in 2018, but a more significant deceleration is likely in 2019, as monetary tightening dampens the growth contribution from consumption and a combination of Brexit and protectionist trade policies result in a less favorable climate for exports. With the pace of expansion forecast to average less than 2% over the medium term, substantive reform of health and social services will be required to ensure that the primary budget deficit remains within the EU’s limit of no more than 0.5% of GDP.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This excerpt is from our latest Political Risk Letter publication, for more information please contact us at (315) 431-0511 and sales@prsgroup.com

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