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Ministry: Finland on cusp of post-pandemic economic growth

The Ministry of Finance has raised its growth forecast for this and next year, with predicted growth of 2.6 percent.

Ihmisiä ostoksilla Kampin kauppakeskuksessa.
File photo of shoppers at Kamppi shopping centre in Helsinki. Image: Henrietta Hassinen / Yle

Finland's economic growth is expected to accelerate towards the end of this year with the upturn likely to boost economic growth in 2022, according to the Ministry of Finance's latest economic forecast.

The ministry's report said Finland's gross domestic product (GDP) is expected to grow by 2.6 percent in 2021 as the coronavirus epidemic eases, and then by 2.5 percent next year and by 1.5 percent in 2023.

"The Finnish economy contracted less than expected," Financial Adviser Jukka Railavo said, adding it was a "positive surprise" that the industry, trade and construction sectors held their ground in 2020 despite the epidemic.

The ministry's forecast is based on the assumption that the coronavirus epidemic will be over by the autumn. If that turns out to be the case, households' accumulated savings are expected to be spent, companies will be more willing to invest and public stimulus will support growth, according to the ministry.

"Control of the epidemic situation as well as more support measures will also play a role," Railavo said.

The economy is not expected to fully recover from the coronavirus epidemic until late 2021, as the ministry believes the significant increase in new infections during the spring is likely to continue to cause economic uncertainty in the short term.

However, as more people are vaccinated and the seasonal impact of the virus subsides over summer, restrictions will be lifted and the economy will begin recovering, the ministry said.

Inflation will however return to normal, Railavo added, as economic growth during 2022 as well as falling unemployment will lead to a rise in inflation.

"Return to normal" during 2022

"The economy will start returning to normal during 2022," the ministry's Head of Department Mikko Spolander said. "Unfortunately, the state of public finances after the epidemic will mean a gradual decline due to an ageing population, a sluggish growth outlook and a chronic public finance deficit."

According to the Ministry of Foreign Affairs, the general government deficit will decrease sharply in 2022, as restrictions are lifted and the economy recovers.

The forecast provided by the Ministry of Foreign Affairs is significant because it creates a basis for the use of state money over the next few years, and state budgets are built on the ministry's predictions.

According to the finance ministry's forecast, the number of people in employment will not exceed the level of 2019, when it was just over 73 percent, until 2023. Finland's unemployment rate is also clearly declining, the ministry added, and will lead to an accelerated rise in earnings levels during 2022 and 2023.

However, public finances will remain largely in deficit throughout the mid-2020s and public debt as a share of GDP will also continue to grow, as it is predicted to increase from the current level of just under 70 percent to just over 75 percent by 2025.

Depending on how quickly the global economy recovers from the Covid crisis, Finland's economy may improve even faster than forecast, according to Financial Adviser Marja Paavonen.

"The blow was not as severe as was initially estimated during the autumn," Paavonen said.

The forecast is also dependent upon Finland's coronavirus situation during the autumn, as another spike in infections may lead to a re-introduction of restrictions that curtail business activities and everyday life.

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