Recession mentioned – OP: Possible already this year

OP Pohjolan according to the economic forecast published on Monday, the Finnish economy will grow by 1.0 percent this year and 1.5 percent next year. OP Pohjola reduced this year’s growth forecast by 0.5 percentage points, and the estimate for 2027 remained unchanged.

According to OP Pohjola, the biggest risks are related to the development of the international economy, especially the development of energy prices. OP Pohjola’s forecast is based on the assumption that oil prices will moderate after rising for a few months and fall to $70 per barrel by the summer.

The war in the Middle East is a big question mark for the economic outlook.

OP Pohjola’s economists have also made three scenarios about the crisis and its effects on the price of oil. The scenarios are calculations of what the predicted development would look like when the development described by the scenarios is taken into account.

1. Quick solution

One scenario is a quick solution where permanent peace is found quickly and oil prices normalize immediately. In this scenario, the Finnish economy would grow stronger than predicted. According to OP Pohjola’s economists, the Finnish economy would grow by 1.3 percent this year and 2.0 percent next year.

2. Prolonged crisis

In the protracted crisis scenario, military operations will continue until the end of summer, as in April, and the oil supply will recover relatively slowly. In this situation, Finland’s economic growth would be slower than predicted, especially next year. According to OP Pohjola’s economists, the Finnish economy would grow by 0.8 percent this year and 0.3 percent next year.

3. The worsening situation

In an escalating situation, hostilities escalate and continue through the summer. In this situation, Finland’s economic growth is only slightly positive this year, and next year the economy may shrink. According to OP Pohjola’s economists, the Finnish economy would grow by 0.5 percent this year and -0.3 percent next year.

“Even probable”

According to OP Pohjola, the presented scenarios are not predictions in themselves, but calculations of what the predicted development would look like when the development described by the scenarios is taken into account.

The scenarios made by OP Pohjola’s economists are based on factors such as export demand, interest rates and inflation, which have their own effect lags, and the effects of the prolongation of the crisis will also be felt next year.

OP Pohjola’s chief economist Reijo Heiskanen states that the prolongation or escalation of the crisis would affect the confidence of companies and households and could be a factor that would weaken development more during this year.

In summary, can we say that if the Iran war is prolonged, the risk is that the Finnish economy will sink into recession next year?

“if it continues, it is even likely that it will sink into recession next year, and the risk is that it will sink already this year, if this significantly affects the confidence that households and companies have in the economy”, Heiskanen answered Kauppalehti’s question at a press conference.