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Economic growth to slow down, finance ministry report says

Finalnd's economic growth will drop below one percent in 2022 and 2023, according to a new outlook.

Uuden ennusteen esitteli ministeriön ylijohtaja Mikko Spolander.
Director general of the finance ministry's economics department, Mikko Spolander. Image: Jaani Lampinen / Yle

The pace of Finland's economic growth is set to slow down over the next few years, according to the Ministry of Finance's Economic Survey, which was published on Monday.

The ministry said it expects the Finnish economy to grow by 1.6 percent this year, but said the pace will slow to a bit more than one percent over the next two years. Expansion will downshift further in 2022 and 2023, when the ministry said economic growth would fall below one percent per year.

The ministry attributed the anticipated slowdown to a parallel downshift in the world economy, the ongoing trade conflict between China and the US.

Last week, the Bank of Finland lowered its projection for the country's economic expansion, forecasting growth of 1.6 percent this year, edging down to 1.5 percent next year and 1.3 percent in 2021.

Director General of the ministry's economics department, Mikko Spolander, said several factors were at play.

"Finland's economic growth is slowing down. A faster growth and a higher employment rate would call for hefty demand in the world economy, a moderate rise in costs in Finland and effective measures by means of which the match between labour demand and supply will improve, structural unemployment will fall and people outside the labour force will become active in looking for work," Spolander said in a ministry press release.

The ministry said the government's budget is set to strengthen next year but then will also gradually begin to weaken.

The macroeconomic outlook did not take into account the new government's economic policy measures, but the ministry said Prime Minister Antti Rinne's government programme will be taken into consideration "as soon as the decisions concerning them will be specified and their effects will be visible."

Foreign trade, investments get weaker outlook

The ministry's survey said it expects export volumes to grow by 2.9 percent, but that growth in other industries would be weak.

Towards the end of the survey's outlook period (2023), the economic forecast said an overall deterioration in the export market and world economy is anticipated.

While the ministry said it expects private investments to start falling this year, it also noted that public investments would continue to grow. It said public investments were driving growth in the building of non-residential construction as well as civil engineering projects.

The report said major public projects could help boost long-term investments, saying that "if decisions on large projects were not made, investments would grow significantly less. Then again, if most of the projects were implemented, the investment forecast would be underestimated."

Private consumption is holding steady and that consumption growth will likely continue due to earnings level increases and boosted employment rate, according to the report.

Average earnings growth is expected to remain steady at about three percent annually, which was the average during the 2000s, according to the ministry.

The ministry said the government deficit will likely expand to around two billion euros by 2023.

"Of general government sectors, employment pension schemes show a surplus while the expenditure in central and local government exceeds the revenue. The combined central and local government deficit will grow to nearly five billion euros by 2023," the ministry said.

The report also warned that the "unpredictability of the US trade policy" highlighted a risk of a "strong slowdown" in the global economy and said that no-deal Brexit as well as "risks related to the Italian economic policy" could also pose problems for Europe.

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