The economic outlook, both globally and in Finland, has weakened suddenly and substantially during the course of the spring on account of the coronavirus pandemic. ‘The outlook for the Finnish economy is overshadowed by both the weakness of the global economy and the restrictive measures introduced at home. Weakened household and business confidence in Finland is an additional factor that overshadows the prospects for growth,’ said Head of Forecasting Meri Obstbaum today at the press briefing for the publication of the latest issue of the journal Euro & talous.
The Bank of Finland has today published its forecast for the period 2020–2022. The Finnish economy will contract sharply due to the coronavirus pandemic: in 2020 by around 7%. A rapid recovery does not look very likely, and in the years ahead the volume of output will be below pre-crisis levels. For the years 2021–2022, the growth forecast is around 3% per annum.
The forecast contains an exceptional degree of uncertainty. According to the alternative scenarios, the contraction in the economy in 2020 could be as little as 5% or as much as 11%, depending on how the coronavirus epidemic progresses and how successfully it can be contained in different parts of the world. Not all companies will survive the recession and some job losses will be permanent. ‘It will probably not be possible to avoid permanent losses of output in Finland, but economic policy can be used to mitigate their scale,’ Obstbaum stressed. Employment will decline much less than during the depression of the 1990s, but slightly more than in the financial crisis of around a decade ago. The employment rate will decline around 2 percentage points in 2020–2021 and recover only partially in 2022.
Both domestic demand and net exports will contract strongly in 2020. At the same time the structure of the economy will change in an unfavourable direction, towards increasing dependence on public demand. The acute phase of the corona crisis will gradually pass, and the economy will begin to recover, led by private consumption. Foreign trade will not support the Finnish economy during the years covered by the forecast, as the halt in global investment caused by the corona crisis and Finland’s weakening cost-competitiveness will keep the outlook for exports very subdued. Moreover, the prevailing uncertainty will continue to slow growth in consumption and investment even after the lifting of restrictions.
The general government balance will deteriorate and public debt will grow considerably in a short time. This is due to the decline in tax revenues, growth in unemployment and other expenditures as well as government measures to soften the economic impacts of the lockdown. The general government deficit relative to GDP will deepen to 8%, and public debt will rise to 71% of GDP in 2020. In 2022, the debt ratio will already be approaching 75%, from where it will continue to grow in the years ahead.
For further information, please contact Head of Forecasting Meri Obstbaum, tel. +358 9 183 2363.