OP downgrades GDP growth forecast

OP’s economists have downgraded the forecast for Finland’s economic growth in 2020, said OP Pohjola in a press release.

According to the new forecast, the Finnish economy would not grow this year. Previously, OP’s economists estimated Finland’s GDP growth to be 0.5 per cent this year. The forecast was revised due to the impacts of the coronavirus epidemic on the economy. The economic growth forecast for Finland for 2021 remains the same at 0.5 per cent.

The economic forecast was revised exceptionally quickly because the problems the coronavirus is causing in production chains are bigger than expected and due to increasing uncertainty.

In addition, the most recent information indicates that last year’s economic performance was below the preliminary figures. “The Finnish economy is vulnerable to fluctuations of export markets and China has a great impact on the Finnish economy. Finland is among those European countries that will suffer the most,” said OP’s Chief Economist Reijo Heiskanen.

The new forecast is based on a moderate scenario where China’s economic growth would slow down to an average of 5.4 per cent this year after a short but steep dip. OP’s economists previously predicted that China’s economic growth would be 5.9 per cent.

The updated scenario corresponds to recent average estimates. As a result, the global economic growth is estimated to slow down to 2.6 per cent this year (previously 2.8 per cent).The slowing global economic growth is reflected in Finland primarily through exports.

Consumption is estimated to grow more or less in line with the previous estimate. Due to the weaker growth, unemployment is likely to increase but the employment rate may remain slightly higher than that in the previous years. “We have assessed various scenarios. If the epidemic drags on for several quarters, at least a mild recession is probable. Recovery is also essential.

“If China’s economy rebounds to its previous trend, the Finnish economy could recover quickly next year,” explained Heiskanen. According to a weaker scenario estimated by OP’s economists, China’s economic growth would only be 5 per cent this year and would not rebound to its previous trend. This would mean that the Finnish economy would fall into recession and would still be recovering from it in 2021. The employment rate would fall, as well.

OP’s economists did not revise the forecast for next year. The outlook for next year may improve, if the dip is brief and if economic policies are eased. It may also brighten, if performance weakens markedly in the short term but normalises fairly quickly. “In the near future, we need to analyse the economy based on various scenarios. Predictability will start to improve only after we gain a better understanding of the epidemic’s development. Until then, the situation needs constant examination and we may have to revise economic forecasts unusually often in future as well,” said Heiskanen.