Finnish economy entering recession on account of coronavirus pandemic

Finnish GDP will contract by 1.5–4% in the current year on account of the coronavirus pandemic and weakening cyclical conditions. A sharp decline in the demand for Finnish exports will push growth firmly into negative territory. If household consumption significantly declines and domestic supply chains become disrupted by the pandemic, the recession may prove even deeper.

The Bank of Finland will begin publishing interim forecasts for the Finnish economy twice a year. These forecasts are to be published in the spring and autumn and will provide a revised outlook for economic growth, employment and inflation developments in Finland. The Bank’s more detailed forecasts for the Finnish economy will continue to be published in June and in December.

Due to the exceptional circumstances created by the coronavirus pandemic, the first interim forecast will not be based on a likeliest baseline forecast path but will instead present two scenarios on the potential impact of the pandemic on the Finnish economy. The scenarios serve as a preliminary reference for the magnitude of these effects in a situation where the economy is certain to enter recession but where its depth cannot yet be forecast.

In the first scenario, the coronavirus spreads globally across all the major economies and the Finnish economy contracts by 1.5%, largely on account of sharply reduced export demand. Successful measures are taken, however, to contain the pandemic's effects on economic growth.

The second scenario further assumes that household consumption will decline significantly and that the supply chains of domestic firms will also become disrupted due to extensive domestic containment measures. The scale of these effects is calibrated to statistical data on developments in China in the beginning of the year, as other economic data showing the effects of the coronavirus are still unavailable. In this scenario, Finnish economic activity contracts by about 4% in the current year. Given the rapidly evolving situation and ongoing spread of the coronavirus pandemic, an outcome similar to the weaker scenario seems increasingly likely.

The Finnish economy began the year in a weak starting position even without the impact of the coronavirus. Economic growth slowed down last year and even contracted considerably during the fourth quarter. In spite of favourable purchasing power developments and improved business profitability, private consumption remained muted and private investment contracted. This year, Finland's economy will sink into recession on account of the coronavirus pandemic.

The scenarios assume that the effects of the pandemic are temporary and that the Finnish economy will resume its growth trajectory towards the end of the year. Such a relatively quick turnaround in the face of the economy's jarring halt at the start of the year will require successful policy intervention aimed at preventing firm bankruptcies and rising unemployment.

For further information, please contact Head of Forecasting Meri Obstbaum, tel. +358 9 183 2363 and Aino Silvo, economist, tel. +358 9 183 2021.

Interim forecast for the Finnish economy (in Finnish)