Interim forecast for the Finnish economy: recession followed by slow recovery

On the basis of current data, the Finnish economy will suffer a smaller recession this year than was previously feared. The Finnish economy is expected to contract in 2020 by 4.7%. In 2021, the economy will grow by 2.7% and in 2022 by 2.4%.

So far, economic developments during the coronavirus pandemic have not been as weak in Finland as in many other countries. However, the recession is also deep in Finland. The economy will recover slowly as the coronavirus pandemic is still spreading across the world and creating uncertainty about future economic developments. Uncertainty will remain high, both globally and in Finland, slowing growth in household consumption and business investment.

Since the recession is exceptionally global in nature, the international operating environment will be difficult for companies in the coming years. Global uncertainty and declining investment in Finland’s export markets will keep the outlook for foreign trade subdued in the next few years. Economic growth will rest mainly on private consumption.

Unemployment threatens to remain weak for a protracted period. In response to the coronavirus pandemic, the labour market situation deteriorated exceptionally dramatically in the spring. In March–July 2020, the number of persons employed declined on average by about 60,000 on the corresponding period a year earlier. There will be no rapid improvement in employment in the foreseeable future, given the slow pace of economic growth and the continued decline in the working-age population. According to the Bank of Finland forecast, both the number of persons employed and the employment rate will remain well below the levels prior to the pandemic. The employment rate is estimated at about 71% in 2022.

Price pressures will be subdued in the next few years. Consumer price inflation has slowed in 2020, reflecting a substantial decline in demand. Inflation is being suppressed in particular by slowing services price growth and falling energy prices. Inflation will remain subdued in the immediate years ahead, too, and will pick up only slightly with the recovery of economic growth.

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

• Interim forecast, September 2020 (in Finnish)

For further information, please contact Meri Obstbaum, Head of Forecasting, tel. +358 9 183 2363.