Finland's Ministry of Finance issued a downbeat Economic Survey on Friday, warning that economic growth is slowing and inflation accelerating more than previously expected.
It projected that Finland's GDP will edge up by 1.4 percent this year before slowing over the next two years. The ministry forecasts growth of just 1.1 percent next year and 1.3 percent in 2024, warning that there is a risk of slipping back into recession.
The economic outlook is overshadowed by Russia's invasion of Ukraine, which began in late February, pushing up the cost of energy and other essentials just as society was re-emerging from the pandemic years.
"The economy will recover from Covid-19 and also, in time, from the war, but the economic outlook remains subdued. Lifting the economy on to a more favourable and ecologically sustainable growth track that strengthens public finances requires the ability to compete successfully for investments among our peers," said Director General Mikko Spolander in a statement.
The possibility that Finland will face a new recession – in other words a decline in GDP over two consecutive quarters – even this year continues to increase as the war grinds on, he said.
Energy pushing up all other prices
While inflation climbed to seven percent last month, a 30-year high, the ministry expects a slightly more moderate average rate for the whole year: 5.8 percent.
Energy remains the main driver in the rise of consumer prices, it said, noting an accelerating increase in food prices as well. Higher prices for energy and raw materials are also jacking up the cost of other goods and services.
Next year, growth in private consumption will slow as rising inflation cuts into households’ purchasing power and the growth in employment fades, according to the state number-crunchers.
Thanks to rapid growth in tax revenues, public finances will continue to strengthen this year. The tide will turn next year, though, when the deficit will again start to widen as economic and employment growth peter out.
"Rising debt service costs must be taken out of other public spending and reduce the already tight buffers of public finances," noted Jenni Pääkkönen, a senior financial adviser at the ministry.
The outlook for exports is also weaker than previously estimated due in part to the precipitous drop in exports to Russia. Exports are also affected by the slowdown in consumption growth in other countries.