Finnish economy to shrink by 4.5% this year

The Finnish economy will shrink by 4.5% this year, according to a forecast of the finance ministry made in the report of its latest Economic Survey published on Monday.

The Finnish economy has contracted in three consecutive quarters. The coronavirus (COVID-19) pandemic nevertheless caused less damage to the Finnish economy in the first half of the year than it did to most other European economies, said the ministry in a press release, quoting the survey findings.

During the summer, there was a quieter period in the virus situation, which prompted households in many countries to be more active and to consume more, which was also the case in Finland.

However, the pace of economic recovery is slow due to the low level of confidence felt across the economy and the increase in uncertainty. The considerable increase in COVID-19 infections and the imposition of new restrictions cast a further shadow over the recovery, and the economy is once again at a turning point.

“The economy is at a turning point, as the epidemic has reared its head again. The recovery threatens to be delayed if households and businesses take a gloomier view of the way ahead. Only effective treatment or a vaccine will bring a clearer outlook. Once that happens, though, things could move forward at quite a pace for a while,” said Mikko Spolander, director-general of the Economics Department at the finance ministry.

Gross domestic product (GDP) is forecast to grow by 2.6% in 2021 and by 1.7% in 2022. This gradual recovery in the economy follows the standstill seen in the early part of 2020. Private consumption will recover the fastest, but the growth in consumption of private sector services will continue to be slow.

The reduced level of housing construction will weaken the recovery in investment. Exports and industrial production are suffering from the continuation of the pandemic and will not return to growth until next year.

The level of debt in public finances will grow substantially this year and in 2021. General government finances were already in deficit before the recession, and the imbalance will not simply correct itself once the pandemic has subsided.

The ratio of general government debt to GDP looks set to increase throughout the 2020s, as central and local government finances remain in deficit, the outlook for economic growth remains subdued, and the ageing of the population increases public expenditure.