Research institute: The government's actions threaten to prolong the recession – Economy

According to the research institute Labore, the increase in value added tax coincides with a time when the recovery of the Finnish economy is only in its initial stages.

Research institute Labore estimates that the growth prospects of the Finnish economy have weakened in the spring and early summer.

The main risks are the governments’ extensive balancing of the public finances and the uncertainty of the international economy, which may slow down the economic recovery in 2024–2025.

“The timing of the balancing of the public finances may turn out to be unlucky, because the tightening of the value added tax, which reduces consumption, will come into effect in the fall, when the economic recovery is likely to be in the early stages,” says Labore’s Forecasting Manager Juho Koistinen.

Despite the weaker economic growth prospects, Laboren will not change his official forecast, at least for the time being, which is significantly brighter than, for example, the new estimates of the Bank of Finland and the Ministry of Finance.

 

 

Treasury estimates in the spring that the government’s balancing of the public finances will shrink the economy by 0.5 percentage points next year.

In Labore’s opinion, the estimate is cautious. Therefore, it is possible that the effect of the balancing is greater than the ministry’s estimate, which increases the risk of the recession being prolonged.

Based on the detailed preliminary data published by Statistics Finland in May, the gross domestic product grew by 0.2 percent in January–March from the previous quarter, but contracted by 1.2 percent from the same period last year.

The beginning of the year when interpreting economic growth, according to Labore, it should be taken into account that they were affected by the political strikes that closed the ports. The export of goods and services decreased by 4.6 percent from the previous quarter and by 8.4 percent from a year ago.

Based on this, according to Labore, it can be assumed that during the remaining three quarters, exports will be more vigorous compared to the first quarter.

However, investments shrank in the beginning of the year, which is mainly due to residential construction, whose recovery is not yet in sight.

By Editor

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