BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/11
Exports declined for the second year in a row, with the rate of decline steepening last year as economic conditions in Russia deteriorated. Import restrictions imposed at the beginning of last August hindered Finnish food exports to Russia, the value of which contracted in the final months of 2014 by 60–70 % y-o-y. Exports to Russia, however, only generate about 3 % of total sales of Finland’s food industry.
Finnish exports to Russia this year are set to contract further on the ruble’s weakness and the recession the Russian economy is experiencing. Recovery in exports will take time as Russian economic growth is expected to remain weak for a while. Due to the significant reduction in re-exporting goods produced in third countries to Russia, a return to the previous high levels of exports seems unlikely. Finnish Customs estimates that the share of re-exports in Finnish exports to Russia fell from nearly 40 % to 24 % between 2008¬ and 2013.
Some re-exports are prone to huge fluctuations due to rapidly shifting production and logistics chains. Re-exports of cars and mobile phones from Finland to Russia soared in the early 2000s. When Finnish exports to Russia peaked in 2008 at around €7.6 billion, some €2 billion of that figure consisted of mobile phones and cars made elsewhere than Finland. Following the 2009 financial crisis, re-exports of cars and phones evaporated, with production structures and transport routes shifting so that the business is unlikely to ever return. With the collapse in re-exporting of cars and mobile phones, the biggest re-export categories became e.g. pharmaceuticals and tools. While the 2014 estimate of re-exports has yet to be released, re-exports already dropped far more in 2013 than other exports, following the pattern of 2009.
The direct impact of re-exports on Finnish output and employment is not as large as for other forms of export, because re-exported goods are not manufactured in Finland.
The value of goods imports from Russia contracted by nearly a fifth last year to €8.7 billion. Much of the shrinkage was due to the fall in oil prices; some 80 % of Finnish imports from Russia consist of mineral fuels. Russia was still the top goods provider for Finland, accounting for 15 % of Finland’s total imports. Low oil prices have continued to depress the value of imports this year. In January-February, the price of Urals-grade crude oil averaged just over $50/bbl, down from nearly $110/bbl a year ago.