Nordea: The government’s adjustment measures will slow economic growth next year

Nordea-bank lowers its forecast for Finland’s economic growth next year due to the government’s additional adjustment measures.

In its economic forecast released on Wednesday, Nordea predicts that Finland’s gross domestic product (GDP) will grow by 1.5 percent next year, while in January the bank estimated a growth of two percent.

“We lowered the GDP growth forecast for 2025, as the additional adjustment measures announced by the government will slow down the recovery of consumers’ purchasing power,” Nordea’s economists write in the economic forecast.

Prime minister Petteri Orpon The (kok) government decided last week on tax increases and spending cuts, which will strengthen the public finances by around three billion euros.

Nordea estimates that Finland’s GDP will shrink by 1 percent this year, but that the economy will turn to growth during the rest of the year.

Nordea’s forecast is the darkest of the financial forecasts announced this spring. The forecast is the same as in the financial forecast announced in January.

Last year, Finland’s GDP shrank by one percent, according to the latest data from Statistics Finland.

Nordic according to estimates, Finland’s economic growth will be boosted at the end of the year by the slowdown in inflation, the improvement in the purchasing power of households and interest rate cuts by central banks.

Last year, Finland’s economic development was one of the weakest in Europe, when the rise in mortgage reference rates reduced the purchasing power of households and froze housing construction.

Nordea estimates that the housing market will continue to adapt to the increased supply and the increased interest rate. According to Nordea’s forecast, it will keep both housing prices and construction prices stagnant this year as well.

Instead, the bank expects private consumption to grow this year as inflation slows. The outlook for the export industry has also improved as global economic growth picked up.

“Slowing inflation and falling interest rates, together with picking up export demand, is turning the economy back to growth this year. Weak construction, however, keeps the economic growth figure for the entire current year still in the red,” says Nordea’s economist Juho Kostiainen in the bulletin.

The government According to Nordea’s assessment, the additional adaptation measures outlined in the framework crisis will improve the balance of the public finances next year. The bank expects that the growth of the debt ratio will be reversed next year thanks to adjustment measures and economic growth.

According to Nordea, additional measures are necessary in order to stop the development of indebtedness in the public finances, although they also have the effect of slowing down economic growth.

“Increases in value added tax increase inflation and slow down the recovery of purchasing power. However, the expected drop in interest rates partially compensates for the effects of the adjustment measures on domestic consumption,” Kostiainen estimates.

Nordea estimates that private consumption will grow faster next year than the current year. It would ease the weak situation of retail trade and services.

The increase in real earnings will probably also have an effect on improving consumer confidence, Nordea estimates.