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Consumer confidence in Finland drops further during April

Russia's invasion of Ukraine coupled with high inflation has hit consumer confidence levels.

Consumer expectations for inflation were the highest in the history of the survey since it began in 1995. Image: Silja Viitala / Yle

Both consumer confidence and business expectations of economic development dropped once again during the month April. A report by Statistics Finland found that consumer confidence has only been weaker on two previous occasions, at the beginning of the Covid crisis in April 2020 and the end of the 2008 global financial crisis.

Similar levels were recorded last month, but April's figures painted an even gloomier economic outlook among consumers.

People's expectations of continued inflation were the highest since Statistics Finland began recording the metric in 1995.

Respondents' feelings about their own financial situation were also weak, with only a few planning to spend money on durable goods in the near to medium-term future.

In addition, only 10 percent of respondents said they think that the Finnish economy would improve in the coming year.

Economist Juho Keskinen from Hypo, a Finland-based mortgage lender, pointed out in his review that consumer sentiment is now darker than that of companies.

"However, consumers have become more attentive and selective as a result of the inflation caused by the war, and purchases are now being weighed carefully," Keskinen wrote, adding that the mood in the housing market has cooled, but no major collapse is expected.

Jukka Appelqvist, chief economist at the Central Chamber of Commerce, speculated in his report that the dreary outlook of households may be an overreaction.

"Households are still in shock as a result of the start of the war. Rising consumer prices are eating away at confidence in one's own financial situation as purchasing power shrinks. I would still argue that household estimates are even too gloomy in some respects," Appelqvist wrote in his report.

He reiterated that there is already a headwind building in Finland's economic situation.

"Interest rate restrictions have been lifted and the opening up of the economy will offset declining exports. In addition, demand for labour is still strong and the risk of unemployment is low," Appelqvist noted.

War hits construction

According to the Confederation of Finnish Industries' (EK) business cycle barometer, the economic outlook for Finnish companies has diminished the most among those in the construction sector.

"Russia's invasion of Ukraine is particularly felt in construction, where the situation has rapidly deteriorated. The availability of materials in particular is now a big issue, which is also seen as a huge problem on the industry side. Although there is still enough demand in many places, uncertainty about the future, combined with a sharp rise in costs, is now significantly hampering the operating environment for Finnish companies," said Sami Pakarinen, Director of EK.

In the service sector, labour supply problems have amplified in many areas.

Meanwhile, Pasi Kuoppamäki, Danske Bank's chief economist, noted that inflation and the war in Ukraine will cast a dark shadow over Finland's economic outlook, but confidence indicators still do not show panic.

"The fact that companies' confidence remains relatively stable speaks to their ability to adapt to the situation. The continuing shortage of skilled labour in companies and the moderation of consumers' fears of unemployment show that the labour market has remained stable," Kuoppamäki wrote in his assessment.

The risk of higher inflation should be taken seriously, although inflation is expected to decline towards the end of the year.

"At the same time, the economy must adapt to a time when trade relations with Russia are freezing and the export market is cooling elsewhere," Kuoppamäki summarised.