General Economic Development in Finland

In 1995 Finland's GDP growth continued on the same 4.5 percent level as in 1994. Industrial production increased by almost 10 percent encouraged by the good export demand in the metal and electronics sectors. The entire exports grew by 8 percent in volume. The growth of exports, however, weakened markedly towards the end of the year, as the economic situation worsened rapidly in Finland's main markets.

The private investment had also a clear positive influence on the economic growth. However, construction of residential buildings continued to decline, and thus weakened sawn timber demand.

Unemployment rate was still high, on average 17.2 percent, in spite of brisk economic growth. Inflation remained low, year-on-year rise in the consumer price index was only 1 percent, lowest of the EU countries. Current account showed a surplus of over 23 billion FIM, i.e., 4.2 percent of GDP.

The general slowdown of economic growth in the main European countries at the end of 1995 was also seen in Finland. This weak development continued during the first half of 1996 especially in the exports and investments reflecting also to GDP.

In the second half the economic growth accelerated again as private consumption increased remarkably and exports began to revive. Construction turned upwards and manufacturing output started to show a stronger growth.

Although the growth remained slower in 1996 than the previous year, with a 3.2 percent growth of GDP Finland was clearly above the European average. In spite of a slight improvement, the unemployment rate was still high, 16.3 percent. Current account showed continuously strong surplus, 3.4 percent of GDP and the inflation rate was still low, only 0.6 percent rise in the consumer price index. The long-term interest rates are well below the EMU-criteria.

Performance of Forest and Paper Industries in 1995-1996

During the first three quarters of 1995 the development of the Finnish forest industry was favourable with a rapid growth in the production and exports. In the last quarter, however, the European paper market, especially in the woodfree grades, collapsed, cutting the demand of pulp and paper drastically. As a result, the paper industry production in Finland decreased by 12 percent in the fourth quarter of 1995 compared to the same period of the previous year. Thus, in spite of a good start, in 1995 the paper and paperboard production remained on the same level as in 1994, i.e., 10.9 million tons. Pulp production increased only by 1 percent up to 10 million tons.

The production of sawn timber was cut by 3 percent to 9.4 million m³ due to the low level of domestic construction. However, the production of wood panels peaked, driven by favourable export demand.

As a whole, in 1995 the forest industry production increased by only 2 percent. The average operating rate of the industry was 92 percent.

The volume of the Finnish forest industry exports decreased by 1 percent on average, and showed therefore a slightly weaker development than that of production. The export tonnage of pulp, paper and paperboard altogether decreased by 3 percent while sawn timber and wood panels experienced a slight increase in the exports.

The prices of sawn timber decreased from the beginning of the year. The woodfree paper grades showed a similar trend during the second half. In 1995 the average export prices were some 13 percent higher than in 1994.

As a result the export revenue of the Finnish forest industry increased by 12 percent to 59 billion FIM in 1995.

The total turnover of the Finnish forest industry companies (with some 30 percent of their paper capacity outside of Finland) rose to the record level of 95 billion FIM and the net result of the companies doubled from 6 billion FIM in 1994 to 12 billion FIM in 1995. The total investments of the forest industry in Finland were 8.5 billion FIM.

In 1996 the situation worsened with the weak economic development of the main European countries affecting almost all branches of the industry. Weak demand led to production curtailments of 7-8 weeks, which dropped the average operating rate to 85 percent. On average, the Finnish forest industry production decreased by almost 3 percent.

Paper and paperboard production decreased by 5 percent to 10.4 million tons, which was 0.5 million tons less than in 1995, the biggest drop since the recession of 1975. Respectively, total pulp production dropped by 4 percent.

The sawn timber production decreased to 9.2 million m³ (-2 percent) because of a recession in the construction sector both domestically and in the export markets. An exception was the plywood production which increased by 11 percent partly because of the new capacity.

The total export volume decreased by 2.5 percent. Paper exports decreased by 8 percent, and exports of sawn timber by 5 percent. On the other hand, exports of wood panels, pulp and paperboard increased.

In 1996 the price level for most products dropped. On average, the export prices were 8 percent lower than in the previous year. Pulp prices decreased by 35 percent, woodfree papers by 20 percent and sawn timber by 10 percent. The average prices of mechanical paper grades in 1996 still remained slightly above those of 1995.

Because of the lower export volumes and lower prices, the Finnish forest industry export revenue was cut by 10 percent to 53 billion FIM in 1996. The profitability of the industry also weakened remarkably. The investments, however, rose to 12 billion FIM. During the year several projects came on stream, Metsä-Serla's new 300 000 tons paper machine at Kirkniemi, UPM-Kymmene's 100 000 tons release paper machine and the 500 000 tons pulp mill of Metsä-Rauma.

Finnish forest certification standards project is well under way. A national board of timber certification system was formed in April 1996, on the initiative of the government. Its working committee is addressing organisational matters concerning forest certification. In August 1996, a special working group was formed in which the forest sector, environmental organisations, and social organisations are cooperating to develop standards for sustainable forestry in Finland. FSC's international principles and the EMAS's Environmental Auditing scheme provide the foundation for the work. The proposal is planned to be presented in April 1997.

The broad-based standards working group has progressed swiftly and is well on schedule. The group is continuing its committed efforts to create minimum requirements or standards, taking domestic conditions into account.

The target of forest certification is to guide forest management and utilisation towards sustainability, economically and ecologically, observing social and cultural aspects, and thus promote marketing of forest products. Finland's commitment to international agreements, legislation on forestry and nature conservation, and the environmental programme for forestry adopted in 1994 form the basis of this project.

Voluntary commitment of each forest owner will most obviously be included in the certification system. Regional or farm levels and their combination have been studied as alternative levels for certification. The regional basis will be more applicable to the Finnish circumstances.

The participation of a forest owner in the system should be made as easy as possible, regardless of his earlier forest management practices. The new Finnish legislation on forestry and nature conservation, which came into effect on 1 January 1997 offers a steady ground.

The forthcoming proposal of the working group is intended to be applicable both to international certification system of forest management (FSC) and environmental management systems (ISO and EU/EMAS). Rather than being mutually exclusive, they can be combined and thereby they can complement each other.

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