The Impact of Russia-Ukraine Military Conflict on Finnish economy

According to Bank of Finland Governor Olli Rehn, there are great uncertainties about the effects of the war on the economy, as situation essentially depends on the duration and extent of the conflict. Europe has imposed unprecedented economic sanctions on Russia. The war will be forcing Europe and Finland to reshape their economies and to intensify economic and security policy cooperation.

The war between Russia and Ukraine will have a significant impact on economic growth and inflation in the euro area through higher energy and commodity prices, the disruption of international trade and weaker confidence. However, the underlying conditions for the euro area economy are solid.

Inflation in the euro area increased to 5.8% in February and is expected to accelerate in the near term. The main factor behind the high rate of inflation was the development of energy prices. Market-based indicators suggest that energy prices will remain high for longer than expected.

In Finland, economic growth will slow to between 0.5 % –2 % current year. Due to the exceptional situation, the Bank of Finland publishes two scenarios on the effects of the crisis on the Finnish economy instead of an interim forecast.

• In the first scenario, the effects on economic growth and inflation are limited mainly to 2022, Finland’s GDP growth would be around 2%.
• In the second scenario, Finland’s export markets will weaken more and the prices of raw materials and energy will remain high for a longer time due to the war. The economy adjusts very slowly and finding replacements for the loss of the Russian market need some time. In that case, Finland’s GDP growth could be just around 0.5% in 2022–2023.

In both cases, inflation in Finland is expected to accelerate to between 4% and 5% this year, mainly due to rising energy and raw material prices.

Current inflation rate in Finland can be found from our website in the section:
"Key indicators of the development of the Finnish economy"

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