The Bank of Finland warns of a weakening of the economy

Finland the economy will grow clearly weaker than expected next year, estimates the Bank of Finland.

According to the forecast announced on Friday, the economy will grow by 0.8 percent next year. It is 0.5 percentage points less than in the previous forecast.

“Economic growth has been weaker than expected this year, which will continue into next year. The main reason for the weaker-than-anticipated economic growth is the weakness of household consumption and high unemployment,” says the Bank of Finland’s Forecasting Manager Juuso Vanhala.

Household consumption is mainly held back by weak confidence in the economy. Confidence has been eroded by the threat of Russia, the danger of unemployment and the weak state of public finances.

In 2027, according to the Bank of Finland, economic growth will accelerate to 1.7 percent, but will slow down to 1.5 percent in 2028.

“Household consumption will increase starting next year because their purchasing power will improve as a result of the increase in real earnings and the strengthening of the labor market. In addition, exports will continue to grow, which will support the recovery,” says Vanhala.

Export growth is especially accelerated by the strengthening of the euro area economy. Based on a survey by the Confederation of Finnish Business, companies’ confidence in the economy strengthened slightly in November.

In the worst in this case, economic growth would remain stagnant next year as well.

According to the Bank of Finland’s alternative calculation, household consumption will not grow at all. It would mean that next year the economy would only grow by 0.1 percent.

“The danger is that households will start to reduce their indebtedness and refrain from spending, as the value of their assets has decreased, especially due to housing prices falling. This would slow down the growth of consumption and the recovery of the economy,” says Vanhala.

The Bank of Finland predicts that residential construction will continue to be subdued in the coming years. However, the housing market is starting to recover gradually as consumer incomes grow and confidence in the economy strengthens over time.

“Due to the structural weaknesses of the economy, there is no prospect of economic growth accelerating to two or three percent more permanently, as in the long ago past,” says Vanhala.

The most important of the weaknesses is labor productivity modest development in less than 20 years.

Public the economy will remain in a significant deficit for the next few years. It means that income is less than expenditure.

According to the forecast, the debt of the public finances in relation to the gross domestic product will increase to 90.6 percent next year, to 91.5 percent in 2027 and to 93.1 percent in 2028.

the CEO of the Bank of Finland Or Rehn’s in my opinion, the debt brake agreed by the largest parliamentary parties is very important to curb indebtedness.

“The parliamentary consensus on debt sustainability is a significant turning point that strengthens both domestic and international confidence in Finland’s public finances,” says Rehn.

In his opinion, structural reforms supporting economic growth must be continued. In addition, public finance buffers must be strengthened when the economy is doing better.

“Maintaining trust requires, in addition to a medium-term target program, concrete decisions, and they should not be postponed. Adaptation at a steady pace produces better results than sudden adaptation dictated by necessity.”