The ongoing Russia-Ukraine war is casting a shadow over Finland’s economic outlook, the country’s Ministry of Finance has said.
The possibility that Finland will enter a recession, where the country’s gross domestic product (GDP) declines for two consecutive quarters, will increase, Xinhua news agency quoted the Ministry as saying.
Accelerating inflation is slowing economic growth, according to an Economic Survey published by the Ministry on Friday.
Finland’s GDP will grow by 1.4 per cent this year, the survey shows, while in 2023 growth will be 1.1 per cent, and in 2024, 1.3 per cent.
In 2021, growth in Finland was 3.5 per cent.
“The economy will recover from Covid-19 and also, in time, from the war, but the economic outlook remains subdued. Lifting the economy onto a more favourable and ecologically sustainable growth track that strengthens public finances requires the ability to compete successfully for investments among our peers,” said the Ministry’s Director General, Mikko Spolander.
Inflation in Finland in 2022 will be 5.8 per cent, and this will curb the real purchasing power of households.
The main cause of rising inflation is increased energy prices, but also a spike in food prices. Growth in energy and raw material costs has also been reflected in prices of goods and services.
The high employment level in Finland has maintained household incomes and purchasing power, the Ministry said. However, in 2023 private consumption will slow down, as employment growth is set to decline.
A major imbalance in the Finnish public economy caused by the Covid-19 pandemic, and the resulting restrictive measures, began declining last year.
The Ministry believes the Finnish economy has been bouncing back this year, with rapidly growing tax revenue.
However, the cost of Finland’s external debt has increased as interest rates have risen.
Prospects for Finnish exports are worse than previously estimated in the spring, due to the decline in exports to Russia. Finnish exports have also been affected by lower consumption levels in export target countries.
Increased inflation may also lead to higher-than-expected salary increases. A price-salary-upward circle would hamper economic growth.
However, the Ministry said that the Finnish economy could receive a boost if independence from fossil fuels is pursued more rapidly, and if green investment projects in the energy sector increase.