The Ministry of Finance released a weaker economic review on Friday, warning of more than previously expected slowing economic growth and accelerating inflation.
It estimates that Finland’s GDP will grow by 1.4 per cent this year, but will slow over the next two years. The ministry forecasts growth of just 1.1 per cent next year and 1.3 per cent in 2024 and warns that there is a risk of slipping back into recession.
The economic outlook is overshadowed by Russia’s invasion of Ukraine, which began in late February and raised the cost of energy and other necessities as society re-emerged from the pandemic years.
"The economy is recovering from Covid-19 and, over time, also from the war, but the economic outlook remains subdued. Putting the economy on a more favorable and ecologically sustainable growth path, strengthening public finances, requires the ability to compete successfully for investment among peers," said the general manager Mikko Spolander in the opinion.
The possibility that Finland will face a new recession – in other words, a decline in GDP for two consecutive quarters – will continue to grow as the war progresses.
Energy raises all other prices
As inflation climbed to seven per cent last month, the highest in 30 years, the ministry expects a slightly more moderate average for the full year: 5.8 per cent.
Energy is still the main driver of rising consumer prices, it said and also noted the accelerating rise in food prices. Higher prices for energy and raw materials also raise the cost of other goods and services.
Next year, private consumption growth will slow as rising inflation cuts household purchasing power and employment growth slows, according to the state’s number crunch.
Thanks to the rapid growth of tax revenues, public finances will continue to strengthen this year. However, the mountain will turn next year as the deficit starts rising again as economic and employment growth slows.
"Rising debt service costs need to be eliminated from other public expenditure and the already tight fiscal buffers need to be reduced," taken into account Jenni Pääkkönensenior financial adviser to the ministry.
The outlook for exports is also weaker than previously estimated, partly due to a sharp decline in exports to Russia. Exports are also affected by the slowdown in consumption growth in other countries.