public finance, economic development, economic prospects
The coronavirus pandemic and the measures taken to contain it have plunged people’s daily routines into chaos and caused companies to run into distress, while at the same time global economic forecasts have suddenly become out of date. The change has been unprecedented in its speed and scale. Finland is no exception.
Coronavirus will hit the Finnish economy hard. Our estimate is that the economy will contract by 5.5% this year as the demand in the export markets will collapse and the measures introduced to contain the virus will restrict mobility and business operations in Finland. The assumption in the forecast is that the measures restricting the level of economic activity will remain in place for three months. This will be followed by a recovery and Finland’s GDP is expected to grow by 1.3% in 2021 and 2022. As the estimates concerning the duration of the measures taken to containing coronavirus are constantly changing, it is exceptionally difficult to make any predictions about the future.
All demand items will contract, and the exports will be hardest hit. There will also be a substantial decline in private consumption and private investments. As the total demand falls, the inflation rate will slow down and earnings will no longer rise as rapidly as before.
The acute crisis will be followed by a rapid recovery but not all sectors of the economy will recover at the same pace. Driven by global demand, Finnish exports will recover and as employment is no longer falling, there will be an upturn in consumption. The recovery of investments will take slightly longer.
General government deficit and debt will rise rapidly this year. Shrinking output and the Government measures to support the economy will weaken general government finances. Finland’s general government deficit will grow by nearly EUR 14 billion this year, reaching EUR 16.6 billion or 7.2% of GDP. The economic growth expected in the foreseeable future will not be enough to balance the general government budgetary position and Finland’s general government finances will remain substantially in the deficit in the coming years.