Research Institute Halves Economic Forecast For Finland

THE INSTITUTE OF LABOR for Economic Research (Labore) has lowered its growth forecast for this year due to Russia’s war in Ukraine.

Labore revealed last week that he expects Finland’s economy to grow 1.8% in 2022, about half the pace of his forecast from last fall. Growth is expected to remain sluggish over the next two years, rising to 1.5% in 2023 and 1.4% in 2024.

The Finnish economy will be negatively affected, both directly and indirectly, by Western sanctions and the general reluctance to collaborate with Russia, according to Sakari Lahdemakithe director of forecasting at Labore.

“Directly through the drying up of Russian trade and indirectly through the erosion of economic prospects across Europe.”

“Finnish economic growth is supported by private consumption and investment. The employment situation will continue to develop positively but slightly slower than before and incomes will increase reasonably over the forecast period,” he added.

Labore said his predictions are based on four key assumptions: Finland manages to find new export and import markets that offset most of its trade with Russia, the war does not extend beyond of Ukraine, sanctions remain in place throughout the forecast period and the dramatic downturn in trade with Russia being long-term.

Private consumption, he said, is expected to rise this year despite rapid inflation as the coronavirus pandemic has left households with considerable savings. The pandemic should not have a major impact on consumption in the later parts of the year, and households will start to dip into their savings.

Likewise, the employment situation will improve further, fueling consumption.

Labore estimated that the euro zone will continue to grow at a solid pace this year and at a relatively solid pace next year despite the adverse effects of the war in Ukraine. Additional EU sanctions on, for example, oil and natural gas would undermine the outlook for monetary union, especially if the sanctions were left in place for an extended period.

“The war will intensify inflation which is already high as a result of the coronavirus pandemic, which is putting pressure on monetary policy tightening in the euro area. According to our forecasts, interest rates in the euro area will increase in 2022-2024,” said Lähdemäki.

Aleksi Teivainen – HT