Economic activity in Finland will see a steep decline as a result of the coronavirus pandemic, the Bank of Finland said in a fresh 2020-2022 economic forecast.
According to the forecast, the local economy will shrink by about 7 percent in 2020. However, while warning of an exceptionally large degree of uncertainty, the central bank projected a partial rebound and growth of around 3 percent in 2021 and 2022. In the worst-case scenario, the fall may reach 11 percent, the bank said.
A reduction in tax revenues coupled with an increase in unemployment-related costs, other forms of assistance and actions to repair the dent made by emergency measures will weaken public finances. This will cause government debt to rise to unprecedented levels in a short time, the bank warned.
According to the central bank, the employment rate will decrease by about 2 percent between 2020 and 2021, but is set to partially recover in 2022. The general government deficit to GDP ratio will rise to 8 percent and the debt to GDP ratio will climb to 71 percent this year and will surge further to 75 percent in 2022 and continue to grow even after that, the bank said.
“Permanent production losses are unlikely to be avoided”, head of forecasting Mary Obstbaum said.
Economic activity slowed down due to the impact of the coronavirus pandemic on the global economy as well as domestic emergency measures, the bank said, cautioning against relying on foreign trade as a tool of economic repair for the local economy. Global investments have slowed down as a result of the pandemic, Finland’s weakening cost-competitiveness will be detrimental for the export sector, the bank stressed.
Furthermore, uncertainty about the future will put a brake on the growth of consumption and investments, even after all epidemic-related restrictions are dismantled.
However, the forecast said that the acute phase of the crisis will gradually wane and that the economy will slowly begin to recover, driven by private consumption.
Bank of Finland governor Olli Rehn said the coronavirus crisis is no reason to increase public spending, saying that will exacerbate the sustainability gap. According to Rehn, what Finland needs now are investments that will above all support future growth opportunities, product development, and employment.
At 7,040 confirmed COVID-19 cases and 324 deaths and some 5,000 recoveries, Finland remains relatively mildly hit by the epidemic. Following a month-long lockdown that included roadblocks around the capital area, Finland is gradually reopening.
Libraries have opened their doors, schoolchildren have returned to their classrooms, and restrictions on cross-border travel have been eased. However, a government report on the exit strategy plan focusing on post-pandemic recovery and reconstruction urged the authorities to prepare for a second wave of the epidemic.