Economic Country Review (0)

Economic Country Review: Finland , Estonia and Hungary
Girli Vasiljev
Report
Business Economics, RB1X
06.05.2012
Abstract
06.05.2012
Experience and Wellness management
Author
Girli Vasiljev
Group
RB1X
Title of report
Economic Country Review: Finland, Estonia and Hungary
Number of pages
20
Teacher
Kalevi Torunen
The goal of this paper is to compare the economic performance of Finland, Estonia and Hungary. First , a general overview on the countries will be given . After, economic indicators ( real GDP growth rate , inflation, unemployment , household consumption , investment, current account , government budget and deficit) of the three countries will be compared to draw a conclusion .
Keywords
GDP, inflation, unemployment, household consumption, investment, current account, government budget, deficit, surplus
Table of contents
1 Introduction ………………………………………………………………………......1
2 Country Specs …………………………………………………………………………1
2.1 Finland …………………………………………………………………….....1
2.1.1 Background …………………………………………………………1
2.1.2 Geography ……………………………………………………..........2
2.1.3 People and Society ……………………………………………..........2
2.1.4 Economic Overview………………………………………………...3
2.2 Estonia……………………………………………………………………......3
2.2.1 Background ………………………………………………………...3
2.2.2 Geography ……………………………………………………….....4
2.2.3 People and Society …………………………………………………4
2.2.4 Economic Overview…………………………………………….......5
2.3 Hungary ……………………………………………………………………. 5
2.3.1 Background ……………………………………………………….. 5
2.3.2 Geography …………………………………………………………..6
2.3.3 People and Society …………………………………………………..6
2.3.4 Economic Overview……………………………………………….. 7
3. Economic Indicators- comparison …………………………………………………8
3.1 Real GDP Growth Rate…………………………………………………...8
3.2 Inflation…………………………………………………………………..9
3.3 Unemployment…………………………………………………………...10
3.4 Household Consumption………………………………………………...11
3.5 Investments………………………………………………………………12
3.6 Current Account…………………………………………………………13
3.7 Government Budget Deficit/Surplus……………………………………..14
4. Summary………………………………………………………………………….15
5. Sources ……………………………………………………………………………16
1 Introduction
The goal of this paper is to compare the economic performance of Finland, Estonia and Hungary. Comparison of different counties in a constantly changing economic environment is interesting , especially after the economic crisis . The results of the analysis will provide us information which of the countries has done the best in recovering. First, a general overview on the countries will be given. After, economic indicators (real GDP growth rate, inflation, unemployment, household consumption, investment, current account, government budget and deficit) of the three countries will be compared to draw a conclusion.
2 Country Specs
2.1 Finland
2.1.1 Background
Finland was a province and then a grand duchy under Sweden from the 12th to the 19th centuries, and an autonomous grand duchy of Russia after 1809. It won its complete independence in 1917. During World War II, it was able to successfully defend its freedom and resist invasions by the Soviet Union - albeit with some loss of territory. In the subsequent half century , the Finns made a remarkable transformation from a farm / forest economy to a diversified modern industrial economy; per capita income is now among the highest in Western Europe . A member of the European Union since 1995, Finland was the only Nordic state to join the euro system at its initiation in January 1999. In the 21st century, the key features of Finland's modern welfare state are a high standard of education, equality promotion , and national social security system - currently challenged by an aging population and the fluctuations of an export -driven economy (Central Intelligence Agency , 2012, ISSN 1553-8133).
2.1.2 Geography
Location : Northern Europe, bordering the Baltic Sea, Gulf of Bothnia, and Gulf of Finland, between Sweden and Russia
Area: total : 338,145 km2- land : 303,815 km2 and water: 34,330 km2
Coastline: 1250 km
Climate: cold temperate; potentially subarctic but comparatively mild because of moderating influence of the North Atlantic Current, Baltic Sea, and more than 60,000 lakes
Terrain: mostly low, flat to rolling plains interspersed with lakes and low hills
Natural resources: timber , iron ore, copper , lead , zinc , chromite, nickel , gold , silver , limestone
Land use: arable land: 6.54%, permanent crops: 0.02%, other : 93.44% (2005)
Environment- current issues : air pollution from manufacturing and power plants contributing to acid rain; water pollution from industrial wastes, agricultural chemicals ; habitat loss threatens wildlife populations
(Central Intelligence Agency, 2012, ISSN 1553-8133).
2.1.3 People and Society
Ethnic groups: Finn 93.4%, Swede 5.6%, Russian 0.5%, Estonian 0.3%, Roma (Gypsy) 0.1%, Sami 0.1% (2006)
Languages: Finnish ( official ) 91.2%, Swedish (official) 5.5%, other (small Sami- and Russian-speaking minorities) 3.3% (2007)
Religions: Lutheran Church of Finland 82.5%, Orthodox Church 1.1%, other Christian 1.1%, other 0.1%, none 15.1% (2006)
Population: 5,262,930 ( July 2012 est.)
Life expectancy at birth : total population: 79.41 years - male : 75.94 years, female : 83.02 years (2012 est.)
Health expenditures: 11.7% of GDP (2009)
Education expenditures: 5.9% of GDP (2007)
(Central Intelligence Agency, 2012, ISSN 1553-8133).
2.1.4 Economic Overview
Finland has a highly industrialized; largely free- market economy with per capita output roughly that of Austria, Belgium, the Netherlands , and Sweden. Trade is important with exports accounting for over one third of GDP in recent years. Finland is strongly competitive in manufacturing - principally the wood , metals, engineering , telecommunications, and electronics industries. Finland excels in high- tech exports such as mobile phones . Except for timber and several minerals, Finland depends on imports of raw materials, energy, and some components for manufactured goods . Because of the climate, agricultural development is limited to maintaining self-sufficiency in basic products . Forestry , an important export earner, provides a secondary occupation for the rural population. Finland had been one of the best performing economies within the EU in recent years and its banks and financial markets avoided the worst of global financial crisis. However , the world slowdown hit exports and domestic demand hard in 2009, with Finland experiencing one of the deepest contractions in the euro zone. A recovery of exports, domestic trade, and household consumption stimulated economic growth in 2010. The recession left a deep mark on general government finances and the debt ratio, turning previously strong budget surpluses into deficits. In addition to marginal growth prospects, general government finances will remain in deficit during the next few years. The great challenge of economic policy will be to mitigate a possible recession in 2012 in which measures supporting growth will be combined with general government adjustment measures. Longer- term , Finland must address a rapidly aging population and decreasing productivity that threaten competitiveness, fiscal sustainability, and economic growth (Central Intelligence Agency, 2012, ISSN 1553-8133).
2.2 Estonia
2.2.1 Background
After centuries of Danish, Swedish, German , and Russian rule , Estonia attained independence in 1918. Forcibly incorporated into the USSR in 1940 - an action never recognized by the US - it regained its freedom in 1991 with the collapse of the Soviet Union. Since the last Russian troops left in 1994, Estonia has been free to promote economic and political ties with the West . It joined both NATO and the EU in the spring of 2004, formally joined the OECD in late 2010, and adopted the euro as its official currency on 1 January 2011 (Central Intelligence Agency, 2012, ISSN 1553-8133).
2.2.2 Geography
Location: Eastern Europe, bordering the Baltic Sea and Gulf of Finland, between Latvia and Russia
Area: total: 45,228 km2- land: 42,388 km2 and water: 2,840 km2
Coastline: 3794 km
Climate: maritime; wet, moderate winters, cool summers
Terrain: marshy, lowlands; flat in the north, hilly in the south
Land use: arable land: 12.05%, permanent crops: 0.35%, other: 87.6% (2005)
Environment- current issues: air polluted with sulfur dioxide from oil-shale burning power plants in northeast; however, the amount of pollutants emitted to the air have fallen steadily, the emissions of 2000 were 80% less than in 1980; the amount of unpurified wastewater discharged to water bodies in 2000 was 1/20 the level of 1980; in connection with the start-up of new water purification plants, the pollution load of wastewater decreased; Estonia has more than 1,400 natural and manmade lakes, the smaller of which in agricultural areas need to be monitored; coastal seawater is polluted in certain locations
(Central Intelligence Agency, 2012, ISSN 1553-8133).
2.2.3 People and society
Ethnic groups: Estonian 68.7%, Russian 25.6%, Ukrainian 2.1%, Belarusian 1.2%, Finn 0.8%, other 1.6% (2008 census )
Languages: Estonian (official) 67.3%, Russian 29.7%, other 2.3%, unknown 0.7% (2000 census)
Religions: Evangelical Lutheran 13.6%, Orthodox 12.8%, other Christian ( including Methodist, Seventh-Day Adventist, Roman Catholic , Pentecostal) 1.4%, unaffiliated 34.1%, other and unspecified 32%, none 6.1% (2000 census)
Population: 1,274,709 (July 2012 est.)
Life expectancy at birth: total population: 73.58 years- male: 68.3 years, female: 79.19 years (2012 est.)
Health expenditures: 4.3% of GDP (2009)
Education expenditures: 4.9% of GDP (2007)
(Central Intelligence Agency, 2012, ISSN 1553-8133).
2.2.4 Economic Overview
Estonia, a 2004 European Union entrant, has a modern market-based economy and one of the higher per capita income levels in Central Europe and the Baltic region . Estonia's successive governments have pursued a free market, pro-business economic agenda and have wavered little in their commitment to pro-market reforms. The current government has followed sound fiscal policies that have resulted in balanced budgets and low public debt. The economy benefits from strong electronics and telecommunications sectors and strong trade ties with Finland, Sweden, Russia, and Germany . Tallinn's priority has been to sustain high growth rates - on average 8% per year from 2003 to 2007. Estonia's economy fell sharply into recession in mid-2008, primarily as a result of an investment and consumption slump following the bursting of the real estate market bubble. Estonia has rebounded well from the economic crisis. GDP contracted 14.3% in 2009, but the Estonian economy now has the highest GDP growth rate in Europe, largely thanks to a boom in exports and increased foreign investment following Estonia's adoption of the euro on 1 January 2011. Although Estonian GDP returned to positive growth in 2010, unemployment continued to rise , reaching an all-time high of 19.8% in early 2010 (Central Intelligence Agency, 2012, ISSN 1553-8133).
2.3 Hungary
2.3.1 Background
Hungary became a Christian kingdom in A.D. 1000 and for many centuries served as a bulwark against Ottoman Turkish expansion in Europe. The kingdom eventually became part of the polyglot Austro- Hungarian Empire , which collapsed during World War I. The country fell under Communist rule following World War II. In 1956, a revolt and an announced withdrawal from the Warsaw Pact were met with a massive military intervention by Moscow . Under the leadership of Janos KADAR in 1968, Hungary began liberalizing its economy, introducing so-called "Goulash Communism." Hungary held its first multiparty elections in 1990 and initiated a free market economy. It joined NATO in 1999 and the EU five years later . In 2011, Hungary assumed the six- month rotating presidency of the EU for the first time (Central Intelligence Agency, 2012, ISSN 1553-8133).
2.3.2 Geography
Location: Central Europe, northwest of Romania
Area: total: 93 028 km2- land: 89 608 km2 and water: 3 420 km2
Coastline: 0 km
Climate: temperate; cold, cloudy , humid winters; warm summers
Terrain: mostly flat to rolling plains; hills and low mountains on the Slovakian border
Natural resources: bauxite, coal , natural gas, fertile soils, arable land
Land use: arable land: 49.58%, permanent crops: 2.06%, other: 48.36% (2005)
Environment- current issues: the upgrading of Hungary's standards in waste management, energy efficiency, and air, soil , and water pollution to meet EU requirements will require large investments
(Central Intelligence Agency, 2012, ISSN 1553-8133).
2.3.3 People and Society
Ethnic groups: Hungarian 92.3%, Roma 1.9%, other or unknown 5.8% (2001 census)
Languages: Hungarian 93.6%, other or unspecified 6.4% (2001 census)
Religions: Roman Catholic 51.9%, Calvinist 15.9%, Lutheran 3%, Greek Catholic 2.6%, other Christian 1%, other or unspecified 11.1%, unaffiliated 14.5% (2001 census)
Population: 9,958,453 (July 2012 est.)
Life expectancy at birth: total population: 75.02 years- male: 71.27 years, female: 78.98 years (2012 est.)
Health expenditures: 8.2% of GDP (2009)
Education expenditures: 5.2% of GDP (2007)
(Central Intelligence Agency, 2012, ISSN 1553-8133).
2.3.4 Economic Overview
Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-25 average. The private sector accounts for more than 80% of GDP. Foreign ownership of and investment in Hungarian firms are widespread, with cumulative foreign direct investment worth more than $70 billion . In late 2008, Hungary's impending inability to service its short-term debt - brought on by the global financial crisis - led Budapest to obtain an IMF/EU/World Bank -arranged financial assistance package worth over $25 billion. The global economic downturn, declining exports, and low domestic consumption and fixed asset accumulation , dampened by government austerity measures, resulted in an economic contraction of 6.3% in 2009. In 2010 the new government implemented a number of changes including cutting business and personal income taxes , but imposed "crisis taxes" on financial institutions , energy and telecom companies , and retailers. The IMF/EU bail-out program lapsed at the end of the year and was replaced by Post Program Monitoring and Article IV Consultations on overall economic and fiscal processes. The economy began to recover in 2010 with a big boost from exports, especially to Germany, and achieved growth of approximately 1.4% in 2011. At the end of 2011 the government turned to the IMF and the EU to obtain a new loan for foreign currency debt and bond obligatins in 2012 and beyond . Whether negotiations result in a loan depend on Hungary meeting EU and IMF requirements for ensuring the independence of monetary, judicial , and data privacy institutions. The EU also launched an Excessive Deficit Procedure and requested that the government outline measures to sustainably reduce the budget deficit to under 3% of GDP. Unemployment remained high, at more than 11% in 2011. Ongoing economic weakness in Western Europe is likely to further constrain growth in 2012 (Central Intelligence Agency, 2012, ISSN 1553-8133).
3 Economic Indicators- Comparison
3.1 Real GDP growth rate
Analyzing the graph , we can notice that the real GDP growth rate has been rising and falling most in Estonia. And we can see that the economic crisis hit Estonia hardest as we can see from 2008 when Estonia was only one from those 3 that´s real GDP growth rate was negative . Of course the other 2 countries followed Estonia during the next year-2009 with showing negative performance in their real GDP growth rates.
Estonia´s real GDP growth rate is most volatile with its ups and downs, while Finland and Hungary are more stable. However, Finland suffered quite rapid loss in real GDP growth rate in 2009, when it reached -8,4%.
3.2 Inflation
Annual inflation rate has been the lowest throughout the years in Finland. Hungary and Estonia are showing continuously higher annual inflation rate. When the crisis hit in 2008, the inflation rate went up as a rocket for all of those countries, especially for Estonia, however it is remarkable that the next year-2009- Estonia´s annual inflation rate dropped rapidly from 10,6% to 0,2%. It stayed rather low for 2 years and after Estonia changed their currency to euros, the annual inflation rate went up again and is continuously growing . Also I would point out Finland´s annual inflation rate, that the country has managed to keep in a good low level, especially in the year of 2004, when it was only 0,1%.
3.3 Unemployment
Annual unemployment rate in all 3 countries started to go down as the economic situation was getting better in 2005-2008. Obviously after the crisis, the annual unemployment rate grew a lot, especially in Estonia again. Even though the unemployment rate in Estonia has been very high in the past recent years, the situation between 2010 and 2011 has gotten better. Hungary´s and Finland´s recent years annual unemployment rate has been more or less same , not showing remarkable improvement. However Finland´s annual unemployment rate has not changed a lot throughout the last 10 years, and now having the lowest unemployment rate from those 3 it is quite a good result. Hungary´s unemployment rate was outstandingly low in the beginning of 2000‘s, but after the crisis it grew greatly .
3.4 Household Consumption
That indicator is interesting to follow . Finland had the lowest household consumption per GDP until the crisis. After the crisis the household consumption increased in Finland, but decreased in Estonia and also in Hungary. What is amazing is that Estonia´s and Hungary´s household consumption stayed so high for so long before the crisis and at the same time Finland showed humble numbers (2002-2008). As the economic situation is unfavorable right now in Estonia, the household consumption has come down to 50,9% per GDP, that is the lowest in 10 last years. Hungary is ahead from Estonia covering 52,9% and Finland had the leading role in 2011 with 55% of household consumption per GDP.
3.5 Investments
Remarkably, Estonia has had enormously higher percentages in investments per GDP. It´s peak was in 2006, when it reached 36% of GDP. While the other countries on that same year showed results as 21,7% for Hungary and 20% for Finland only. As mentioned before, the crisis change circumstances, and after the year 2008, the percentage of investments dropped rapidly for Estonia, but not that tremendous gap appeared in the results of Finland and Hungary: there was a slight change but nothing remarkable. In 2011 Estonia shows minor growth again and is still in the leading position compared to Finland and Hungary. Hungary has the lowest rate staying on the level of 16,7 %. Once again Finland has had the most stable results with lowest of 18,7 % and highest of 21,4 %.
3.6 Current Account
Finland is the only country of those 3 that has been running a current account surplus throughout the last decade; meaning that Finland is the only one that has been absorbing less than it is producing, in other words - saving. Finland´s export articles play a big role in having relatively high current account surplus; however, the current account surplus has been decreasing within recent years. On the other hand we have Estonia and Hungary, countries that both had current account deficit for a long time. Emphasizing Estonia again: the country´s current account was in deep deficit, reaching -15, 9 % in 2007, after a year it managed to decrease it to a level of -9,9 % and next year Estonia was running current account surplus of 3,7 %, having even higher percentage than Finland. Also Hungary managed to turn their deficit into surplus in 2010.
3.7 Government Budget Deficit
Central government budget deficits occur when a government's expenditures exceed the revenue that it generates. Bearing that in mind, we can see that Hungary is a perfect example on creating central government budget deficit. It has been running a deficit throughout 9 years from 2002-2010. Finland and Estonia have been taking the same route except the year 2008, when Finland was showing good results, having government budget surplus of 4,3 %, while Estonia dropped and had a government budget deficit of -2,9 % per GDP. However, Finland followed Estonia next year, 2009, having also a government budget deficit. That was the year that all of those 3 countries had a central government budget deficit. It remained that way for couple of more years, when Estonia showed it´s government´s budget surplus, running a 0,2 % surplus. It is basically the same level that Estonia was in 2002. While Estonia was struggling to increase the government budget surplus in 2010, the other 2 countries stayed in the negative side, both having government budget deficits; Finland -2,5 % and Hungary -4,2 %.
4. Summary
Comparing different indicators between different countries shows us a general economic picture in the given country. After analyzing Finland, Estonia and Hungary I would say that the indicators were not dramatically different. It might refer to a fact that all those 3 countries are situated in Europe and are driven by the general situation in that area and the regulations as well. Finland and Estonia are neighbors and I believe that one’s economic situation influences slightly of the other´s condition. Nevertheless, after looking at the different variables, I noticed that Finland was the most stable country, it didn´t have as volatile movements as Estonia did for example. Clearly Estonia was the most surprising country as it rates could have been in negative sides in one year and the other it would be already on the positive side and growing (current account deficit to surplus in 2009). It was obvious from the graphs that Estonia was the country that was influenced most when the crisis hit in 2008, but it has rebounded well after. I would rank the countries based on their results throughout the last decade as 1. And the best would be Finland, 2. Hungary as it has been showing average results and 3. Would be Estonia due to the damage that crisis brought to the country. However the economic forecast for years 2011-2013 says about Estonia: The Estonian economy grew faster than expected in the first three quarters of 2011. The expansion was mostly driven by the favorable market environment and invigorating domestic demand. The post-downturn hike in the Estonian export volume has been impressive. Both households and enterprises in Estonia bought more durable goods, stepped up investment and were more willing to borrow (Estonian economy and monetary policy, 2011, p. 2). Basically predicting growth to Estonia´s economy and probably the overall economic picture in Europe will get a slightly positive tone after the years of depression, including Finland and Hungary as well.
5. Sources
Central Intelligence Agency, 2012, URL: https://www.cia.gov/library/publications/the-world-factbook/geos/fi.html
Central Intelligence Agency, 2012, URL: https://www.cia.gov/library/publications/the-world-factbook/geos/en.html
Central Intelligence Agency, 2012, URL: https://www.cia.gov/library/publications/the-world-factbook/geos/hu.html
European commission: Eurostat , 2012, URL: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
Estonian Economy and Monetary Policy, 2011, URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/ylevaade/_2011_02/_4_211.pdf?ok=1

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