The recovery of the Finnish economy from the COVID-19 crisis has been boosted by stronger-than-expected developments in the second half of 2020. Economic growth in 2021 is expected to be higher than projected in the December 2020 forecast, despite the worsening of the pandemic in the early months of the year. The Finnish economy will grow by 2.6% in 2021.
The forecast is based on the assumption that as vaccination coverage increases, society can be opened, and economic growth will gather pace. The economy will continue to recover in 2022, with GDP growth reaching 2.7%. The pace will slow to 1.2% in 2023, as growth will be constrained by the decline in the working-age population and weak productivity growth.
The global pandemic already showed signs of easing in the first weeks of 2021, despite the setbacks in some regions. The gradual lifting of containment measures, albeit more slowly than previously expected, as well as the progress in vaccinations and the strong economic policy support have increased expectations for a more rapid pace of recovery. As a result, the growth projections for Finland's export markets have been revised upwards.
Private consumption will be the engine for growth in 2021. The worsening of the pandemic will constrain possibilities for spending in the first half of the year, despite the introduction of new and safer practices suited to the pandemic conditions. The increase in vaccination coverage raises confidence in the prospect of an end to the pandemic, and growth in private consumption will pick up during the course of the year. Growth in consumption will remain strong in 2022.
The employment rate decreased by just under one percentage point, to 71.6% in 2020, but will return to pre-pandemic levels in 2022. During the COVID-19 crisis, jobs have been lost particularly in services. Despite the uncertainty surrounding the impact of the third wave of the pandemic on business activity and employment, growth in service sector employment can be expected to continue after the crisis. Towards the end of the forecast period, improvements in employment will be impeded by slow economic growth and a further contraction in the working-age population.
Consumer price inflation slowed in 2020, due to the steep decline in energy prices, particularly the price of crude oil. Inflation as measured by the harmonised index of consumer prices (HICP inflation) will pick up, to 1.3% in 2021, reflecting higher energy prices and other temporary factors. In 2022–2023, inflation will be sustained by a rise in services prices.
The Bank of Finland publishes an interim forecast for the Finnish economy twice a year. These forecasts are published in the spring and autumn and provide a revised outlook for economic growth, employment and inflation developments in Finland. The Bank’s more detailed forecasts for the Finnish economy are published in June and December.
For further information, please contact Meri Obstbaum, Head of Forecasting, tel. +358 9 183 2363.