NARDEA on Wednesday said it worsened the forecast of economic growth in Finland.
The Finnish economy is currently forecast to grow by 2.5 percent in 2022 before slowing down in 2023. However, Finland is approaching winter in a better economic position than many other European countries.
The outlook remains murky due to high inflation, a sharp rise in interest rates, the energy crisis in Europe and the coronavirus measures taken in China.
Household purchasing power is expected to continue to deteriorate as a result of record high inflation, because only a small share of high energy prices has yet been passed on to consumers and because the country’s energy sector problems will take years to resolve. Europe. The European Central Bank (ECB), meanwhile, is trying to prevent wage inflation and maintain price stability by raising interest rates significantly.
ECB on Thursday announced the highest interest rate hike ever, raising the deposit rate from zero to 0.75 percent and the prime refinancing rate to 1.25 percent.
“In the future, very different events are possible. We may find ourselves in a spiral of rising prices and wages in the euro zone, which will continue to keep interest rates high,” he commented. Tuuli Koivuchief economist of Nordea.
“On the other hand, we could soon be witnessing a deep recession, when broad-based price pressures quickly dissipate and stimulus-based fiscal policy is once again necessary.”
Driven by the demand for services and the situation in construction and manufacturing, the Finnish economy has been doing quite well this year, despite the Russian invasion of Ukraine. Economic growth, in turn, lifted employment to record highs and rapidly reduced unemployment.
However, fuel and electricity prices have been pushed up by energy shortages in Europe. Export industries are stumbling not only because of high energy prices, but also because demand has fallen as a result of slowing economic growth on the continent.
“Investments made in the energy sector for the green transition now benefit society as a whole, as dependence on increasingly expensive fossil fuels is reduced,” Koivu said.
The situation for households will remain challenging this year and next, as rising inflation and interest rates are expected to continue to outpace income growth. However, the fall in purchasing power is somewhat mitigated by household savings generated during the pandemic, a positive employment situation and support schemes launched by the government.
“This winter will mean a deficit for households as food and electricity bills rise along with interest on home loans. The weak purchasing power of the population is already reflected in the decrease in the consumption of goods and the weakening of the demand for real estate, which contributes to the slowdown in construction,” she said.
Alexi Teivainen – HT