Bank of Finland: Profitable companies may quickly become insolvent

If the financing needs of the business sector are not adequately secured at the beginning of the corona pandemic, profitable companies may quickly become insolvent, says the Bank of Finland. The Bank of Finland emphasizes the importance of companies' financing needs protection, otherwise profitable companies will quickly become insolvent.

According to the Bank of Finland's interim economic forecast, the corona pandemic and the related restrictive measures will put severe pressure on the companies' cash flow. Production constraints and slump in a demand reduce companies' income whereas expenditures remain unchanged.

The Bank of Finland expects Finland's GDP will decrease by 1.5% - 4% this year, as a result of the coronavirus pandemic and the economic downturn.

If companies become insolvent, the recession may be significantly longer than expected and the employment situation will deteriorate more. Employment has continued to improve in January, but according to the Bank of Finland, the coronavirus pandemic will reverse employment situation back to the decline.

The government is well aware of this situation. On Monday, Prime Minister Sanna Marin said that, there is no longer a discussion of the government's employment target that concerns the creation of 30 000 jobs, now the aim is to maintain the existing jobs.

Inflation is still slowing down

The Bank of Finland expects that the recession caused by the corona pandemic will slow down inflation significantly. Harmonized consumer price inflation was 1,1% in February (Statistics of Finland) and the growth in consumer prices accelerated slightly at the beginning of the year as compared with the third and fourth quarters of last year.

At that time, inflation was still driven by energy prices, but since February, both crude oil and electricity prices have fallen sharply. Price inflation for both services and processed food has slowed down earlier, which, according to the Bank of Finland, reflects the weakening of private demand at the end of last year and beginning of this year.

The full information and the source text can be found at Taloussanomat website.