Finland's new government will face these economic headwinds

Finland goes to the polls against a gloomy economic backdrop (Source: Getty)

Nervous investors today have one eye on Greece and the other one on … Finland.

Today Finn's are going to the polls to elect a new governments. It's widely expected to be led by the liberal Center Party. It's also likely to include participants from Prime Minister Alex Stubb's National Coalition Party (Kokoomus) as well as the Social Democrats. But anxiety is stemming from the potentially prominent role which could be awarded to the euro-skeptic Finns Party.

It doesn't look like Finland is going to leave the Eurozone just yet, and nor is it experiencing a funding crisis, however the increased power of this party within its government could mean decision-making becomes a lot harder over at Brussels.

The key source of contention will be the country's stagnating economy which has taken center stage throughout the election campaigns.

The economy has failed to regain its footing following the fall-out from the Eurozone sovereign debt crisis, suffering slow growth rates, topped off by a three-year recession.

However it'll receive a small boost this year. Monetary magic over at the European Central Bank- in the form of Draghi's unprecedented €1.1bn bond-buying program - will no doubt help its case. As will low global oil prices, due to their ability to whittle down prices, and boost consumer spending.

The root on Finland's economic woes is its competitiveness problem, with wages generally rising at a time when the economy is slowing.

The counter factual trend has persisted despite the fact its struggling counterparts in South Europe – such as Spain and Italy – have slashed wages, and also means its on par with the euro area's strongest economy Germany.

High labour costs have had an adverse effect on Finland's exports sector. Rising wages have made it cheaper to manufacture, and subsequently sell, a product in one of its competitors in the euro area.

But beneath this lies a deeper problem. Finland's membership to the single currency has meant it cannot devalue its currency vis-a-vis its competitors consequently making exports cheaper.

And another structural dilemma the country faces is its rapidly ageing population.

This, alongside rising wages, has hit the country's unemployment rate which is currently 10.1 per cent. It's persisted despite government steps such as hiking the retirement age and letting young people start work earlier.

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