Finnish Ministry of Finance has published on 5 October 2020 the Economic Survey that offers short-term projections of economic developments in 2020–2022 and medium-term economic outlook extending to 2024.
The coronavirus pandemic has led to a deep recession in the global economy, but many indicators point out that the economy will start to recover from the third quarter of current year 2020. However, the second wave of the pandemic increases and it leads to rise in uncertainty. The global economy is forecast to contract by 6,1 % this year and then turn to 5,5 % growth next year.
The euro area economy contracted by almost 12% in the second quarter of 2020 comparing to the previous quarter. The service sector has suffered the most by the restrictions imposed by national governments. The EUR 750 billion economic stimulus plan outlined by the EU will give a boost to the economic recovery. It is expected that the euro area economy will contract by 9,6% this year and grow by 5% in 2021.
The Russian economy is also weakened by relatively low crude oil prices, in addition to pandemic. The limits on oil output agreed with OPEC in spring have also impacted on the level of activity. The Russian government are going to continue its economic stimulus program until the end of 2021, using substantial financial buffers. Total output will shrink by 6,4% this year, and then turn to growth of 3,3% in 2021.
In United States COVID-19 epidemic still in strong force, but the number of new cases has decreased. Unemployment increased at an unprecedented rate. However, the economy expected to start recovering in the third quarter due to stimulus measures introduced by the federal government. Nevertheless, current social instability slackens the recovery pace. Uncertainty is reflected in the weakening of the US dollar in recent weeks. Total output will shrink by 6,9% this year, followed by a growth of 4,1% in 2021.
As a result of the pandemic, world trade contracted sharply. In June, however, it started to grow. Trade in goods is expected to grow over the forecast period, supported by growth in demand. As a whole, the world trade will shrink by 10,3 % this year, but grow 6,5 % next year.
Short-term market interest rates and government bond rates are at historically low levels, and no changes are expected in them in the predictable future. Short-term interest rates have decreased after a short rise in the spring. Interest rates will rise moderately at the end of the outlook period.
Inflation remains modest. Inflation has been slow for many years, especially in developed countries. Low inflation shows the sluggishness of the economy.
There are some risks that may lead to decline in economy:
- a second wave of the COVID-19 pandemic is the key risk;
- collapse of the Brexit negotiations would add an uncertainty in Europe;
- the social situation in the United States remains unstable in the election year and any escalation would dampen the global economic outlook.
The key positive effect to the economy may give as was previously expected an effective vaccine for COVID-19.
The full information and the source text can be found in the Publication of the Finnish Ministry of Finance website.
Published 07.10.2020, FINREPO