Finnish economy to shrink by 4% this year: OP

The economists of OP Pohjola Group estimate that the Finnish economy will contract by four per cent this year and rebound to a three per cent growth next year, said a press release.

There is still more uncertainty than usual, but notably less than in last spring.

The economists’ estimate of the Finnish economy is more positive than in May, when they estimated that the economic growth would contract by six per cent.

In the spring, next year, the economic growth was estimated that time to stand at 3.5 per cent, which now is projected to be three per cent.

Based on the Statistics Finland’s advance information, Finland’s gross domestic product (GDP) during the second quarter was 4.9% below the GDP in the corresponding period of last year.

This fall was smaller than estimated previously. OP’s payment card data shows that spending has recovered relatively quickly from the trough of March–April. The direct effects of the restrictions on industry and construction were clearly smaller in Finland than in many other countries.

Private spending rebounded already in May–June, and OP economists estimate that the economy will clearly pick up from the second quarter already in July–September. The bottoming of export, in the wake of the euro area, is to be expected in the autumn during the third quarter. Investment cycle is flatter than both spending and export. Some sectors will suffer from the pandemic for a long time to come.

“Finland’s cycle follows the cycle of the euro area but as a flatter version. Both the crash in the spring and the subsequent bounce were smaller here than in other countries. After steep fluctuations, there is moderate growth ahead. An optimist would say that we’re on the threshold of a boom, whereas a pessimist would note that we’re in for years of struggling to achieve the economic situation preceding the crisis,” said OP Chief Economist Reijo Heiskanen.

The economists of OP estimate that the unemployment rate of this year and next will be 7.5%, which is only 0.8 percentage points higher than that in 2019. The impact on employment rate, however, will be more pronounced. This year, the employment rate will fall to 71.6% from last year’s 72.6% and next year it will be 71.7%.

Inflation remains slow and current account relatively balanced. But fiscal deficit is increasing at a rapid rate, and it will remain rather large in next year, too.

“Right now, the economic policy supports growth, as it should. It’s critical for the next attempt at balancing public finances that in addition to employment, the competitiveness and productivity of the export sector are invested in. Particular attention should be paid to how well Finnish companies can take advantage of the projects initiated with EU stimulus money,” said Heiskanen.