Finland emerges as the 'new sick man of Europe' as euro's worst performing economy

Finland has emerged as the eurozone's worst performing economy, contracting by a stark 0.6pc in the third quarter.

The northern creditor nation has been mired in stagnation for the last three years, leading its finance minister to dub it "the new sick man of Europe".

Finland's economic problems stem from a collapse in demand from neighbouring trade giant Russia, highly uncompetitive labour costs, and the decline of its most successful company - Nokia. The country is also grappling with chronic ageing and has one of the highest rates of government spending in Europe.

The European Commission estimates that Finland will manage just 0.7pc growth next year, worse only to debt-laden Greece.

Finland has also been plagued by political paralysis after elections this year brought a new centre-right coalition to power. Helskinki's conservative alliance, led by prime minister Juha Sipilä, came close to collapsing over healthcare reforms earlier this month.

Mr Sipilä has vowed to embark on a bold but "painful" austerity blitz to slash government spending and carry out structural reforms to get the country of 5.5 million back on its feet.

The Finns have taken a tough line against eurozone bail-outs for southern European economies, but the third quarter numbers show their economic misfortunes eclipsed Greece, where the economy shrank by just 0.5pc.

Greece's performance was better than economists had feared, as the economy continues to lumber under capital controls and requires a €14.4bn recapitalisation of its banking sector.

But Italy and Portugal disappointed expectations in the third quarter. Italian growth undershot at just 0.2pc, while Portuguese GDP fell flat at 0pc.

Portugal's stuttering performance will raise concerns in Brussels, as the former bail-out nation faces a future under a left-wing anti-austerity government that has vowed to reverse government cuts to jobs and wages.

The numbers suggest that as a whole, the stagnant eurozone is failing to reap the rewards of record low interest rates and collapsing oil prices as economic growth disappointed in the third quarter.

GDP in the bloc grew by just 0.3pc in the three months to September, against expectations of 0.4pc.

France was the only major economy to show signs of life, emerging from 0pc growth to expand by 0.3pc. Spain led the 'Big Four', growing by 0.8pc in the quarter and boosting prime minister Mariano Rajoy's bid for re-election next month.

Germany grew by an anticipated 0.3pc as domestic consumers offset the fall in international demand for German goods.

"The weak euro and extremely favourable financing conditions have not deployed their full impact on [German] industry," said Carsten Brezski at ING.

The faltering fortunes of the 19-member bloc is likely to see the European Central Bank deploy more stimulus measures in December. The ECB is widely expected to cut interest rates further and ramp up its bond buying to revive animal spirits.

However, economists warned a bumper QE programme may be subject to diminishing returns as the global economy suffers from a slowdown in emerging markets.

"Even as ‘whatever it takes’ becomes ‘forever it takes’, this is not enough to help the currency union recover," said Danae Kyriakopoulou at the Centre for Economics and Business Research.