“Tama is expected to remain low, but the economy will also recover in the summer more slowly than estimated. The statistics that became available in the summer show weak development for the rest of the year. In addition, risks in the domestic and global economy have increased. compressed Meri ObstbaumHead of forecasting at the Bank of Finland.
Finland’s economy is slowed down by inflation and rising interest rates on the one hand, and the erosion of export demand due to the deterioration of the economic situation and prospects of the euro area on the other hand. When the continuous growth of employment also stops, the only positive thing is a rapid slowdown of inflation.
The Bank of Finland attributed the recession mainly to the struggles of the manufacturing industry and housing construction.
“Because the share of industry and housing construction in the gross national product is higher than the average in the euro area, [the struggles] weaken the Finnish economy more than in many other countries”, the forecast says.
The order backlog in industry is decreasing, companies are unloading their large inventories and reducing their production. Housing construction, on the other hand, is falling sharply, as the increase in bankruptcies and the low number of building permit applications create dark clouds for the prospects of the near future.
Although the outlook for industrial investments is still somewhat positive, private investments have been declining for three quarters already.
Finnish households have had to cut their consumption to finance their housing costs amid rising interest rates, which is helping to slow down inflation. The Bank of Finland believes that households are close to using up their savings due to the restrictions put in place to contain the coronavirus pandemic.
“It is very difficult to say exactly to what extent the savings accumulated during the pandemic have already been used. We estimate that they will run out next year or the year after that, the central bank said. “The effect of this is, for example, that the service sectors no longer support the economy as strongly as in recent years.”
The Bank of Finland predicts that inflation will slow to 4.3 percent in 2023 and 1.0 percent in 2024. It also highlighted that workers in many industries expect wage increases in 2024.
“In Finland, there are relatively reliable indicators that price pressures are easing significantly.”
The employment rate for people aged 20–64 will decrease from 78.1 percent in 2022 to 77.9 percent in 2023 and 77.7 percent in 2024. In 2025, the employment rate will return close to last year’s level, when economic growth accelerates to 1.4 percent.
On Thursday, the European Central Bank stated in its forecast that the euro area economy will grow by 0.7 percent in 2023, 1.0 percent in 2024 and 1.5 percent in 2025, which clearly exceeds the growth predicted by the Bank of Finland for Finland.
The gloomy economic outlook requires a reassessment of the Finnish government’s financial policy plans, views Mika MalirantaDirector of the Labor Institute for Economic Research (Labore).
“The [Bank of Finland’s] the prognosis is plausible, albeit shocking. The slowdown in economic growth is becoming longer than previously expected, which should somehow be taken into account in the economic policy of the near future. The balancing of public revenues and expenditures must be continued, but the emphasis on adjustment should perhaps be slightly postponed, he analyzed For Helsingin Sanomat.
Aleksi Teivainen – HT
Source: The Nordic Page