The importance and difficulty of reconciling short-term and long-term economic policy

The article examines public finance adjustment and long-term economic growth in Finland.

Recessions weaken wellbeing and slow productivity growth — for this reason, adjustment measures should be timed with a weighting towards the economic upturn. In a downturn, spending cuts may prove ineffective and worsen the situation. The year 2025 would be a more propitious time for adjustment measures.

Finland’s market sector productivity fell significantly in 2008–2015 due to problems at Nokia and in the forest industry. This has accumulated considerable catch-up potential relative to comparator countries. If productivity growth accelerates to one percent per year, it would ease both real wage development and the correction of the public finance deficit significantly. Artificial intelligence may additionally accelerate growth.

Adjustment measures must nonetheless be set in motion — but in a way that does not drive the economy into a deep recession. (AI translation)

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