Bank of Finland forecasts rapid but temporary growth

The Finnish economy will enter a period of brisk growth as the COVID-19 pandemic begins to ease, states the Bank of Finland in its latest outlook published on Tuesday.

The Bank of Finland in its forecast for the Finnish economy for the years 2021–2023 said that the economy will grow 2.9% in 2021 and 3.0% in 2022. However, in 2023, GDP growth will already slow to 1.3%, reflecting the longer-term challenges of an ageing population and weak productivity growth.

‘The economy will grow in the coming years, led particularly by household consumption. Consumers have strong confidence in the economy. Once the COVID situation improves and they can consume more freely, this will give a shot in the arm to the Finnish economy. However, we cannot expect a prolonged period of rapid growth,’ said the Bank of Finland’s Head of Forecasting, Meri Obstbaum.

The pandemic is expected to ease as the vaccination programme progresses. The reduction in uncertainty and recovery in the economy with the help of monetary and fiscal policy will boost the global economy.

‘The recovery in the global economy, and particularly in the euro area, will also boost demand for Finland’s export goods and services,’ said Obstbaum. Finnish exports will recover rapidly, reaching pre-pandemic levels already in 2021.

The positive tone is further bolstered by the fact that most Finnish companies have come through the pandemic relatively unscathed. It has been most difficult for services companies such as restaurants. As the pandemic recedes, companies will again begin to invest. On the labour market, too, the picture is relatively bright. Strong economic growth will pave the way for employment growth and, as services recover, we can expect the growth to generate lots of jobs.

The COVID crisis has placed a strain on central and local government, whose expenditures have grown substantially during the crisis. At the same time tax revenues have declined. The swollen public deficit has been funded by borrowing. General government debt will continue to grow through the years 2021–2023. In 2023 it will stand at 73% relative to GDP.

Inflation is forecast to accelerate in Finland this year to 1.7% amid rising commodity prices and growing consumer demand. The acceleration in consumer price inflation will, however, be temporary.

Actual economic developments could be better or worse than forecast, and the possibility of positive or negative surprises in the immediate years ahead are approximately commensurate.

‘The greatest risks relate to the unpredictability of the COVID pandemic. It will not be over until it has been defeated everywhere in the world,’ said Obstbaum.

On the other hand, the economy could actually grow faster than forecast if in the years ahead households begin to spend the savings they have accumulated during the COVID crisis.