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Finance Ministry: Economy recovering quickly, but fastest growth phase is over

Finland's GDP is expected to grow by 3.3 percent this year, but will begin to slow down next year and drop to 1.4 percent by 2023.

File photo of people walking on Aleksanterinkatu in downtown Helsinki. Image: Henrietta Hassinen / Yle

The Finnish economy is recovering quickly from the Covid crisis, the Ministry of Finance has announced, but the pace of the recovery will start to slow down next year and into 2023.

The ministry forecasts that Finland's economy will grow by 3.3 percent this year, by 2.9 percent next year and by 1.4 percent in 2023, according to figures released during a press conference on Monday.

The rapid pace of recovery has been driven by three main factors, the ministry added: the steady rollout of vaccinations, the lifting of coronavirus restrictions in line with the increase in vaccine coverage and the strong confidence that households and businesses have in the future.

However, while the outlook looks promising, the ministry's Head of Department, Mikko Spolander, said at the Monday morning press conference that there are still causes for concern.

"The rate at which Finland is ageing cannot be sustained at the current level over the longer term," he said.

Spolander also highlighted the issue of employment, noting that while the nation's employment rate has improved with the recent economic growth, there are still many areas for improvement.

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"Long-term unemployment remains high, there are plenty of job vacancies and the shortage of skilled labor has once again been highlighted as a constraint on economic growth," Spolander added.

In addition to improving the employment rate, Finland should also focus on attracting more investment in order to cope with expected structural changes in the global economy, Spolander said.

Attracting investment will require a functioning labour and housing market, strong education and research infrastructure, a smooth immigration process and a competitive taxation rate, he noted.

"We do not have to be the best in the world at everything, but we should be as good in each [of these factors] in relation to competitors," Spolander said.

The ministry does not expect any potential continuation of the epidemic to affect the economic recovery, but uncertainty over viral variants and vaccine coverage do impact the overall economic forecast.

Debt-to-GDP ratio rising

The global economy has also recovered rapidly from the Covid crisis, the ministry further noted, mainly due to the release of pent-up consumer demand.

This in turn has helped to boost Finnish exports, but growth is hampered by a shortage of industrial components in some sectors as well as by logistical issues.

Inflation also accelerated in the first half of the year, mostly due to rising energy prices, but price rises have become more widespread over the last few months.

The ministry said that Finland's budget deficit, that is the imbalance between revenue and expenditure, will not be completely corrected by the expected economic growth and rise in GDP but it will have an effect on shrinking the deficit.

Finland's debt-to-GDP ratio increased by 10 percentage points last year to almost 70 percent, an all-time record high figure, and is expected to climb to about 73 percent by the middle of this decade, the ministry said.

Increased spending on healthcare and care for the elderly — especially as Finland's population ages — could lead to the budget deficit increasing further over the coming decade.