Predictions The growth of the Finnish economy is now rapidly changing.
This week, two banks have already raised their forecast for the growth of the Finnish economy.
OP Pohjola’s economists predict that the Finnish economy will grow by two percent both this year and next year.
The forecast period was opened on Wednesday by Aktia, which predicts growth of 2.1 percent.
Forecasts have been sharply revised upwards since the spring, when OP predicted economic growth of only one percent.
So has the Finnish economy now turned around?
OP Pohjola’s chief economist Reijo Heiskanen according to that, the turn has actually already happened earlier.
During the summer, Statistics Finland corrected the previous figures upwards, which means that the situation has been better than expected all along. According to preliminary data, the Finnish economy grew by an average of about two percent from the previous year in January–June.
In the spring, there was concern that the war in Iran, increased energy prices and increased interest rates would eat into the growth that had started well. Therefore, the economic forecasts presented in the spring predict more moderate growth.
“Compared to the spring forecast, the change comes from the fact that the crisis in the Middle East has not affected as much as was estimated at the time,” commented Heiskanen.
Really the two percent forecast can be considered cautious and indicative of the already realized level.
According to OP Pohjola’s economists’ forecast, growth would continue at the same pace. The most significant driver of growth is investment growth.
“The economy has gradually recovered and now it is catching on in the domestic market as well. The recovery is now on a broader basis and is getting stronger,” says Heiskanen.
There is still no reason to celebrate too much, he reassures. We cannot speak of a boom period.
“The economy is not yet on a strong rise, but sluggish. Mainly as a result of the war, inflation has accelerated and interest rates have risen. They affect the uncertainty of the labor market,” says Heiskanen.
According to Heiskanen, economic growth of two percent can still be considered good. The Finnish economy has grown at an average rate of 1 percent over the past ten years.
It’s not a proper boom yet. That would only be achieved if the growth figures reach the level of 3–4 percent.
In the scenarios made by OP Pohjola, that is also possible – with the most positive development course.
At the beginning of the week published by the Kalevi Sorsa Foundation report compared the forecasts of key Finnish economic research institutes on economic growth.
According to the report of the Social Democratic think tank, the forecasts deviated from the actual growth by an average of 1.5 percentage points in the years 2016–2025.
According to Heiskanen, the situation can also be thought of positively. If the forecasters are now too cautious and estimate the economic growth by the average error, i.e. 1.5 percentage points lower, it is theoretically possible that the growth would be 3.5 percent.
“Correspondingly, we also have a weaker scenario. In that scenario, conflicts continue, inflation is high and interest rates are high. Then we will maintain the economic growth of less than one percent, which has been seen in recent years.”
For the common man the improvement of the economic cycle is not yet visible to the citizen in its full extent.
It is typical that the labor market recovers with a delay. According to OP Pohjola’s forecast, the recovering economy will start to support the labor market and unemployment will decline significantly, although the level will remain high next year.
When half of Finland’s gross domestic product consists of private consumption, an improvement in employment would be essential. Broader employment, on the other hand, is an important factor for the housing market.
“On the level of an individual person, the recovery will begin to be more clearly visible during the next year. The effects will be concretely visible to consumers in the train behind,” says Heiskanen.
Next year, the recovery in residential construction will also strengthen investments.
Although the economy has recovered, household consumption has remained cautious.
When there has been uncertainty in the economy, it has made consumers thrifty. The savings rate has indeed been high. According to Heiskanen, it is also a question of how confident households feel. If consumption increases, it strengthens the positive cycle.
According to the forecast, consumption will be supported next year by both rising real incomes and improved confidence.
The economic turnaround still does not fix the structural problems of the Finnish economy.
“In order for the economy to change more permanently and stronger, bigger changes are required. We’ve been waiting for that for twenty years. I wouldn’t advise you to trust it,” Heiskanen points out.