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Finance Ministry forecasts slump for Finnish economy, but recovery may be quick

The ministry expects a 5.5 percent slump this year, followed by a quick rebound if restrictions only last three months.

Haminan satama.
Exports will be crucial to the recovery. Image: Pyry Sarkiola / Yle

The Finnish Finance Ministry said on Thursday that the national economy is heading for a sharp plunge. It forecasts that Finland’s gross domestic product (GDP) will contract by 5.5 percent this year. For next two years it projects annual growth of 1.3 percent.

The ministry assumes that restrictive measures taken by Finland to tackle the coronavirus epidemic will remain in place for three months. It notes that they are reducing private consumption, but that consumption of daily consumer goods is being least affected.

After three months of restrictions, the ministry’s economists expect a relatively quick recovery.

The ministry has also prepared an alternative scenario in which the restrictions remain in place for half a year, dealing a much heavier blow to the economy. In that case, it says, GDP would sink by 12 percent this year. The public sector deficit would exceed 10 percent of GDP this year.

A long period of restrictions would also have a devastating effect on production capacity, which in turn would slow the eventual recovery.

“Everything depends on how deeply the economy plunges and how long it stays there. The danger is that the longer the economy suffers, the greater the difficulty in reviving it,” says Mikko Spolander, director of the Ministry’s Economics Department.

Jobless rate to hit 8%

The ministry says that the coronavirus crisis will have a limited impact on the employment rate this year, bringing down by two percent to 71 percent. The jobless rate will rise to eight percent, with the number of jobseekers rising by 35,000 this year.

According to the prognosis, the deficit in government finances will soar by nearly 14 billion euros this year to a total of 16.6 billion, or 7.2 percent of GDP – and state finances will remain substantially in deficit for years to come.

A six-month shutdown could lead to a deficit of some 22 billion euros.

In any case, exports will be crucial to the recovery – and will largely depend on when and how restrictions are lifted in other countries, regardless of what the government decides at home.

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