Economy to fall into recession in 2023: Bank of Finland

The Finnish economy is expected to fall into a mild recession in 2023, although it will grow by 1.9 percent over the entire year of 2022, the Bank of Finland forecast on Friday, reported Xinhua.

The central bank said that the Finnish economy grew strongly throughout the first half of this year, as economic growth picked up globally in the early part of 2022 when COVID-19 restrictions were removed. However, growth stagnated again due to the conflict between Russia and Ukraine.

The bank forecast that the Finnish economy would slide into a mild recession, whereby gross domestic product (GDP) would shrink by 0.5 percent in 2023.

A surge in the cost of living, and the energy crisis exacerbated by the conflict in Ukraine, have accelerated a looming recession, the bank said.

"High inflation and weakening purchasing power will cause private consumption to fall in the immediate years ahead," said Meri Obstbaum, head of forecasting at the Bank of Finland.

The bank attributed the impending recession mainly to weakening consumer purchasing power, and the eroding of consumer and business confidence in the economy due to high inflation.

In addition, companies will be cautious in their investment decisions due to the weak economic outlook, the rising cost of financing, and substantial economic uncertainty.

Nevertheless, inflation will slow to five percent in 2023, and settle at about two percent in 2024-2025.

"As inflation slows, household purchasing power will improve, and the uncertainty about the economy will subside. This will encourage consumer spending and strengthen the economy's conditions for growth," Obstbaum said.

The Bank of Finland, therefore, forecast that Finnish economic growth will rebound to 1.1 percent in 2024, and to 1.5 percent in 2025.

In the next few years, public spending in Finland will continue to exceed revenues. The public debt-to-GDP ratio will rise considerably from 2024 onwards, reaching 75 percent by the end of 2025. A fiscal correction will require significant spending cuts and tax increases in future parliamentary terms, according to the bank.