– All in all, it is a matter of taking three steps forward, and now it seems that we need to take one step back, he summed up.
In May, Statistics Finland reported that inflation accelerated to 5.7 per cent in April, mainly due to higher energy prices and agricultural inputs due to the Russian occupation of Ukraine. In the collective bargaining negotiations, on the other hand, an agreement has been reached on wage increases of about 2 percent.
Statistics Finland announced on Friday that real earnings of employees fell by 2.7 per cent year-on-year in the first quarter.
“It seems that a contraction in purchasing power is quite inevitable in the light of current wage and inflation developments,” Meri ObstbaumThe Bank of Finland’s Forecast Manager comments to BTI.
Maliranta saw as the most important question for households how long real earnings will continue to fall. “It may take some time depending on how the situation in Russia develops,” he said.
On Tuesday, Statistics Finland released preliminary data showing that GDP grew by 0.2 per cent in January to March from the previous quarter. Pasi KuoppamรคkiDanske Bank’s chief economist warned that the Finnish economy is in danger of falling into a short-term recession until the global economic situation and inflation environment improve.
According to Obstbaum, the Bank of Finland relies on its 0.5โ2.0 per cent growth forecast presented to the national economy in March. He added, however, that the recession is a real possibility due to the unusual uncertainty and declining confidence of both businesses and households.
โThe collapse in consumer confidence and shrinking purchasing power are slowing consumption, and consumption is the most important component of GDP,โ he said.
Households in Finland are squeezed not only by inflation, but also by rising interest rates. Obstbaum recalled that due to the popularity of floating rate loans, the rise in interest rates is reflected fairly quickly in mortgages.
โConsumption is under some pressure from several directions,โ he told the news agency.
Although rising prices and interest rates place significant constraints on individual households, the situation is different for the economy as a whole. The employment situation is developing favorably, which supports overall consumption and thus protects against the risk of a recession.
“The employment situation is improving very strongly and the purchasing power of the entire household sector is not declining in real terms,” โโsaid Jukka Railavofinancial adviser to the Ministry of Finance.
The Finnish economy recovered well from the crisis caused by the coronavirus before Russia invaded Ukraine. The recovery continues to be reflected in strong employment growth – especially in the services sector.
โIf we look at the sectors in which jobs have been created in recent months, they have largely been created exclusively in the services sector,โ Obstbaum stressed.
Aleksi Teivainen – HT
Source: The Nordic Page