3.2.2 THE PIT OF DEPRESSION WAS REACHED
IN 1932 IN FINLAND
The magnitude of the Great Depression of the 1930s as well as its repercussions varied
greatly from one country to the next. In Finland, the depression lasted from autumn
1929 until spring 1934, and it was moderately severe in comparison with the rest of
Europe.^631 Prior to the depression, Finland had witnessed an economic boom. The
Finnish currency, the mark (FIM) was pegged to the gold standard in 1926, which had
increased developers’ confidence in the banking system and improved the prospects for
profitable business. Besides the stabilisation of the currency exchange rate, several other
structural factors were boosting property speculation, including the lower Central Bank
interest rate, the establishment of the Housing Mortgage Bank of Finland to bring
added funding to the market, the foreign loans invested by the State in commercial
banks in 1928, the increase in the price of land in towns and the Limited Liability
Housing Companies Act enacted in 1926.^632 Housing construction had increased 3.5-
fold in the six years between 1922 and 1928 and the gross value of Finnish industrial
output had doubled between 1920 and 1927 and reached its height in 1928.^633
The year 1928 was a peak year in construction and the turning point for the Finn-
ish national economy in general. As imports grew and exports declined, the current
account posted a deficit and the foreign-exchange reserves were depleted. The Bank
of Finland was keen to curb the growth of the deficit. It raised its discount rate, which
created difficulties for construction in autumn 1928.^634 The decisions were based on
the assumption that the construction industry was the culprit for the rise in imports.
While the volume of construction goods imported had increased in the latter half of
the 1920s, their share of total imports was modest – according to a 1930 report, only
six percent of imports in 1928 were construction goods. The imbalance in foreign
trade was mainly caused by factors other than excessive building activities.^635 The
trend in the timber trade took a turn for the worse at the beginning of 1928, when
Russia increased its supply. The price level of exports that was crucial for the Finnish
economy sank and the Finnish timber industry faced difficulty.^636 From August 1928
until the end of 1930, the price level of agricultural produce decreased by 36 percent
and that of forest-industry products saw an even steeper decline.^637
In 1930, the situation in Finland changed in many respects. Compared to previous
years, only a fraction of new building projects were initiated. The depression first hit
the countryside and factories adopted a shorter working week as domestic demand
631 Hannikainen 2004, p. 10.
632 Hannikainen 2004, pp. 26–30.
633 Kahra 1938, p. 5.
634 Hannikainen 2004, pp. 30–32.
635 Hannikainen 2004, pp. 32–33.
636 Kahra 1938, p. 6.
637 Kahra 1938, p. 7.