According to the latest survey of the Ministry of Finance the Finnish economy is expected to contract by 4,5% this year. Economic Survey offers short-term projections of economic developments in 2020–2022 and medium-term economic outlook extending to 2024.
The Finnish economy has contracted for 3 quarters in a row. Nevertheless, the coronavirus pandemic affected less damage to the Finnish economy than it did to most other European economies in the early part of the year 2020. The economy also appears to be recovering slightly faster than previously expected. However, the recovery is slow due to the weak confidence across economy and the increase in uncertainty. The sharp rise in coronavirus infections and new restrictions continue to overshadow the recovery, and the economy is once again at a turning point.
Gross domestic product (GDP) is estimated to grow by 2,6 % in 2021 and 1,7 % in 2022. Private consumption will recover the fastest, but the growth in consumption of private services will be slow. The recovery in investment is weakened by the decline in housing construction. Exports and industrial production will suffer from the continuation of the pandemic and will not return to growth until the next year.
Demand for labor has decreased and the number of employed will continue to decline during 2020. Economic growth will gradually begin to improve labor demand in 2021 – 2022. The unemployment rate is expected to reach 8,2 % in 2021. Despite the increase in employment, the employment rate will remain at 71,5 % in 2022.
It is assumed that nominal wages would rise by about 2% per year from next year. The rise in consumer prices will remain moderate as consumption growth remains low.
Finland's general government deficit will reach € 18 billion current year 2020, or 7,7% of GDP. General government debt will increase to about 70% of the GDP. The aging of the population has been significantly weakening the general government finances over the last ten years, as the number of older people using many public services and benefits turning to rapid growth. At the same time, the working-age population, whose taxes finance public services and social security, has begun to decline. The aging of the population will continue to put pressure on general government finances in the future, as the number of people over the age of 75 years, especially those who use a lot of social services, increases. Therefore, the public debt ratio to GDP would appear to increase throughout the 2020s.
Consumer confidence and economic viability remain weak until an effective treatment or vaccine is found for the coronavirus. A clear worsening in the situation with COVID-19 during the autumn would increase the uncertainty across economy and weaken economic growth without any real new restrictive measures.
The re-emergence of the coronavirus epidemic is the most significant risk factor in the forecast. The magnitude of the economic impact of the second wave of the coronavirus will depend both on the actions of public authorities to mitigate the epidemic and support the economy and on the impact of these actions on the economic decisions taken throughout the country. If the economy has not fully recovered before the second wave, the contraction in the economy may be smaller than seen in the spring 2020. However, it is likely that the growth potential of the economy will diminish and the effects of the crisis will be felt over longer period.
The full information and the source text can be found in the Publication of the Finnish Ministry of Finance.
Published 09.10.2020, FINREPO