Finland's economic outlook "highly uncertain"-IMF

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Friday September 03, 2010 01:30:01 PM GMT

WASHINGTON, Sept 2 (Reuters) - Finland's economy will likely recover from a deep recession this year and next although its outlook is "highly uncertain," the International Monetary Fund said on Thursday.

Finland's export- and commodity-driven economy took a severe hit after the global financial crisis exploded in 2008, curtailing trade credit. Gross domestic product fell 8 percent last year, the worst performance in the euro area.

Although the economy is expected to grow in 2010 and 2011, the pace will likely be sluggish, the IMF said in its annual review of Finland.

The IMF's directors warned that "a possible permanent loss of output, along with rapid population aging, would heighten challenges to growth and fiscal sustainability."

Like many other advanced economies including Japan, the United States and Germany, Finland's population is aging, and that drives up healthcare and retiree benefit costs.

The Fund supported Finland's decision to keep fiscal stimulus flowing to bolster the recovery, but said the country would need to start withdrawing that support next year.

Government debt burdens have grown in most advanced economies, a consequence of the global recession. The IMF has warned that global growth will likely slow as these rich countries simultaneously reduce public spending.

The IMF's board was split on how quickly Finland should retract its stimulus measures. The Fund said "many" directors backed Finnish authorities' plans for a relatively sharp pullback in 2011, but "many" others advocated a more moderate pace to assure the recovery holds.

The IMF said Finland's unemployment rate would likely hit 8.8 percent this year, up from 8.3 percent last year and 6.4 percent two years ago. (Reporting by Emily Kaiser; editing by Carol Bishopric)

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