Nordea has downgraded its prognosis for the Finnish economy for next year. The bank predicts that the Finnish economy will grow by 2.5 percent this year before grinding to a complete halt next year.
In May, the bank projected that the Finnish economy would grow by two percent this year and 1.5 percent next year.
Although the Finnish economy has fared better than expected at the beginning of the year, the outlook is now weakened by high inflation and rising interest rates, the European energy crisis and ongoing coronavirus measures in China.
Export industries are suffering from expensive energy as well as a decrease in demand as Europe's economic development slows.
Consumer purchasing power is being undercut by high inflation and rising home loan interest rates. According to Nordea, consumer prices will rise about five percent faster than income this year.
Purchasing power is also set to decline as the energy crisis continues.
"Households face scarcity this winter when mortgage interest rates will rise along with electricity and food bills. The weak purchasing power of households has begun to be seen a decline in consumption of goods as well as a weakening of housing demand, which tends to freeze the construction sector," economist Juho Kostiainen said in a press release on Wednesday.
On the plus side, household finances are being bolstered by record-high employment and state support measures.
'Green transition' paying off
The European Central Bank is attempting to calm the situation with assurances on maintaining price stability and raising interest rates, but the situation is difficult to predict, the bank said.
"We may end up in a spiral of rising prices and wages in the eurozone for a long time, which will keep interest rates high for a long time. On the other hand, we could soon see a deep recession, when wide-ranging price pressures would quickly subside and monetary stimulus policies would be needed again," said Tuuli Koivu, Chief Economist at Nordea Markets.
Other risk factors include problems involving the world's economic giants, including spiralling inflation in the United States and continuing Covid restrictions in China.
Compared to many other European countries, however, Finland is heading into a difficult winter from a strong starting point, according to Kostiainen.
"The investments made in the energy sector for the green transition now are benefitting the whole society, as the dependence on expensive fossil energy has decreased. Finland's self-sufficiency in electricity production will also improve considerably when the new Olkiluoto reactor becomes operational and wind power capacity increases rapidly," he said.
The long-delayed Olkiluoto 3 nuclear reactor is scheduled to be fully operational in December.