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Economists warn of recession as latest figures hint at slowdown

Finland may already be in recession, according to a leading economist.

Kuvassa on pyöreitä litiumparistoja.
Batteries may become a growth area for the Finnish economy, with two new factories planned – but the faltering economy may need more of a spark. Image: Mikaela Löv-Aldén / Yle

Finland is heading into a recession, like many other European countries including Germany, France and Italy, according to top economist Sixten Korkman.

Interviewed on the Yle current affairs programme A-studio on Monday evening, Korkman said that the oil price war between Saudi Arabia and Russia will impact Finland, as Russia is a key trading partner. He predicted that Russia will reduce orders from Finland as the falling price of oil hits Moscow's pocketbook.

Korkman, who has served as an economist for the Finance Ministry, the Bank of Finland, the European Council and the OECD, is now Professor of Economics at Helsinki University and head of the business think-tank EVA.

"Already in recession"

Meanwhile Juhana Brotherus, chief economist at the Hypo Mortgage Society, told Yle that "we can say with quite high certainty that the Finnish economy is already in recession". Hypo is Finland's main housing lender.

Brotherus cited the decline in gross domestic product in late 2019 and the uncertainties of early 2020, with the world economy challenged by the new coronavirus and slump in the price of oil. He notes that many sectors of the Finnish economy have also been affected by strikes and other job actions in the early part of this year.

On Tuesday Danske Bank sharply cut its forecast for Finnish economic growth this year, estimating that GDP will edge up by only 0.3 percent this year, compared to its December forecast of one-percent growth.

"The last quarter of 2019 turned out to be quite weak, and global economic developments or domestic business barometers do not allow us to expect a rapid recovery in 2020," Danske Bank chief economist Pasi Kuoppamäki said in a statement.

He warned that the coronavirus is slowing international trade, predicting that exports and investments will shrink by 2020.

"A recession can still be avoided if households have enough staying power to last until the international economy begins to gradually improve," says Kuoppamäki.

Manufacturing order books thinner

Data released by Statistics Finland on Tuesday morning also seemed to reinforce those predictions. They showed that both industrial output and orders were down in January. Output shrank compared to both the previous month and a year earlier.

Seasonally adjusted industrial output nudged down by 0.8 percent in January from the month before, and by 1.8 percent compared to the start of 2019.

The only sector to show significant growth was the food industry, which was up by one percent since December. The chemical industry was basically unchanged while all other main sectors declined. The biggest plunge was in the electrical and electronic sector, which sank by 11.3 percent. Mining and quarrying output fell by by 4.5 percent.

The value of new manufacturing orders dipped by 1.6 percent year-on-year, said the statistics bureau. The only sector to post growth in January was the chemical industry, where orders were up by 8.7 percent from early 2019.

On the other hand, orders in paper and paper board manufacturing slumped by 9.4 percent. Statistics Finland points out however that orders typically show strong fluctuations from month to month.

Shares recover on Tuesday

On Monday the Helsinki Stock Exchange's OMX Index fell by 7.3 percent. Energy stocks Neste and Enedo (formerly Efore) plunged by more than 11 percent, while Fortum, Nordea Bank and Sotkamo Silver fell by more than 10 percent.

Some shares staged a recovery on Tuesday. By late morning, the index was up by around 2.6 percent. Neste and Fortum were up by roughly two percent, as Finnair and discount retailer Tokmanni rose by around six percent.

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