Finnish Economy: recovery will depend on how the Covid-19 situation evolves

According to the recent forecast of the Ministry of Finance of Finland, еconomic growth will accelerate to 2.5% in 2021 when the coronavirus epidemic recedes.

In 2020, the economy will shrink by 3.3%. The easing of the coronavirus pandemic in 2021 has to return the economy closer to the normal conditions. Prior to that, economic growth will remain sluggish due to the restrictive measures, the low level of confidence in the economy and uncertainty. In the second half of 2021, the economy will grow rapidly. Gross domestic product (GDP) is forecasted to grow by 2.0% in 2022 and by 1.4% in 2023.

The forecast is based on the assumption that the number of coronavirus cases will decrease due to strong restrictions over the turn of the year. It is assumed that if the number of diseases starts to grow again after the restrictions are relaxed, then the restrictions may again have to be tightened in early 2021. This creates uncertainty, which can undermine economic recovery in spring 2021. The introduction of vaccines has to improve confidence in the economy in the future and gradually restore the normal functioning of society.

Situation in the Finnish economy briefly:

• Recovery of the economy will be postponed until 2021, as the second wave of the epidemic will temporarily slow down the economic growth.
• Consumption of services is expected to decline again and not recover until consumer confidence gradually returns to normal.
• Nevertheless, consumption of goods remains strong.
• The average growth rate of private investment will remain subdued.
• Starts of new construction projects are expected to be delayed.
• Investments in housing construction will start to decline.
• The general government deficit will be at a high level in 2021due to measures taken by the Government to support businesses, citizens and the economy.
• The postponement of non-urgent medical care leads to a service and healthcare backlog. As a result, it will increase upward pressure on health and social services expenditure after the epidemic subsides.
• The country's public debt to its gross domestic product (GDP), i.e., debt-to-GDP ratio will grow to 69% in 2020. In 2021, the growth of debt ratio will slow as the epidemic recedes and the economy recovers. Nevertheless, there are other things that will continue to increase the debt ratio also in the coming years: imbalance between government revenue and expenditure and increases in spending due to the population ageing. As a result, the public debt ratio is expected to be 75% in 2025.

Global economy recovering in 2021

The global economy has to recover from the deep recession caused by the coronavirus pandemic during 2021. The recovery should be in the second half of the year. Since summer 2020, world trade has begun to recover from the deep collapse caused by the pandemic, and it is expected to continue gradually improving. China’s economy has already almost returned to its pre-crisis level, but the pandemic is still preventing economic normalization in many other economic areas.

The development of the situation in Economy may yet surprise:

• Economic growth may be slower than projected if, for example, there will be an increase in the number of coronavirus cases, restrictive measures are delayed or proved to be ineffective.
• The economy will recover faster, the more quickly vaccines are available. The economy recovery will depend also on how much of the population will be vaccinated and how effective the vaccines are.
• Strong measures to stimulate production and demand have been initiated and are planned in the EU. The implementation of these measures, as well as the measures decided and planned by the Finnish government to stimulate the economy, will support production both in Finland and elsewhere.

The full information and the source text can be found at Ministry of Finance of Finland website.