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Bank of Finland: Finnish economy to slump then recover

Economic growth is slowing but rising purchasing power provides potential for an uptick, according to the central bank.

Ostoskeskus Iso Omena Espoossa.
Household consumption is still a growth driver, according to the Bank of Finland. Image: Henrietta Hassinen / Yle

Next year global economic uncertainty will negatively impact on Finnish exports as well as investments into Finnish companies.

Economic growth will slow to 0.9 percent next year, picking up to 1.1% in 2021 and to 1.3% in 2022, the Bank of Finland said in a forecast published on Tuesday.

The central bank did forecast, however, provide some bright spots. Economists projected the euro area and the global economy will gradually recover over the next two years, stimulating the Finnish economy in the process.

"There is still potential for continued economic growth. Purchasing power is increasing and households are able to spend more," the bank said.

Public finances under pressure

A decelerating economy will affect job creation in the near future though. In 2020, the bank said it expects the downward unemployment rate trend to come to a temporary halt. Finland’s current unemployment rate is 6.2 percent.

The country's ageing population will meanwhile continue to strain public finances. In 2020 public debt relative to GDP will begin to grow, the bank said.

"Considering the long-term outlook, raising the employment level to 75 percent in the coming years is justifiable. After that, it makes sense to aspire to an even higher level," said Olli Rehn, governor of the Bank of Finland.

The central bank also homed in on the mismatch between vacant jobs and jobseekers in Finland. Weakening productivity in the labour market over the past ten years led the bank's economists to suggest tweaking the education system to better meet the demands of the workforce.

"Average educational attainment among young adults in Finland began declining some 10 to 15 years ago. This is an anomaly on an international scale and very worrying for the country," said Rehn.

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