The period of strong growth is behind us

According Chief Economist of Aktia Lasse Corin, the coronavirus pandemic has been a deep and short-lived shock to the economy, while Russia’s attack on Ukraine will cause a less profound but protracted period of uncertainty. He predicts very moderate economic growth for next year.

In the economic forecast released today by Aktia, Chief Economist Lasse Corin predicts that economic growth will slow to 1.6% this year and be modest at 0.9% next year. “While the coronavirus pandemic and its economic impact have taken a back seat, Russia’s attack on Ukraine has plunged the global economy into a new period of uncertainty,” says Lasse Corin.

Finnish exports and industry have survived the pandemic with little damage, as Finland produces various types of investment and industrial products for foreign companies. The current situation is different. “We expect the economic uncertainty caused by the war to be significantly longer, which weakens the willingness of foreign companies to invest and therefore the export prospects of Finnish companies,” says Corin.

There is also a glimmer of hope on the horizon for Finnish exports. The depreciation of the euro will improve the competitiveness of Finnish exporting companies and lessen the blow to their economies.

With respect to imports, Corin considers the greatest risk to be related to the availability of imported goods rather than the increase in import prices.

The strain on private consumption growth this year and next is caused by more than one factor, but consumption also has an obvious stimulus. “The balance between uncertainty and inflation risks comes from the consumption of services. Corona restrictions have been dismantled and consumers can finally eat out and use other services Growth in service consumption will balance the otherwise weak consumer outlook. However, it is important to remember that the coronavirus has not been definitively defeated and that the recovery of the demand for services requires that the pandemic remains under control”, emphasizes Corin.

In Finland, the acceleration of inflation is mainly due to the increase in the prices of imported products and not to an exceptionally high domestic demand, contrary to the United States. Corin predicts that consumer prices will rise, ie inflation will occur, by 5.1% in 2022 and slow to 1.9% in 2023. “Finland is a small country. We have no choice but to embrace global market price developments with open arms, and that’s what Finland’s high inflation rates are for,” says Corin.

Source: Aktia