Economy to contract by 3.3% in 2020 : Ministry

Economic growth will accelerate to 2.5% in 2021 as the coronavirus epidemic recedes, according to the forecast of the Ministry of Finance made in its latest Economic Survey published on Thursday.

In 2020, the economy will contract by 3.3%. The easing of the coronavirus (COVID-19) pandemic in 2021 will restore the economy closer to normal conditions, said an official press release, quoting the survey findings.

Before then, economic growth will remain sluggish due to increased restrictive measures, the low level of confidence felt across the economy and greater uncertainty.

In the second half of 2021, the economy will grow rapidly. Gross domestic product (GDP) is forecast to grow by 2.0% in 2022 and by 1.4% in 2023.

The forecast is based on the assumption that coronavirus cases will decrease due to severe restrictions over the turn of the year.

If the number of cases starts to rise again after the relaxation of restrictions, they may again have to be tightened in early 2021.

This creates uncertainty, which will undermine economic recovery in spring 2021. The introduction of vaccines during the spring will improve confidence in the future across the economy and gradually restore the functioning of society towards normality.

The imbalance between general government revenue and expenditure will remain above 5% of GDP in 2021.

The deficit will gradually decline in the coming years but will, however, remain so high that it appears that the general government debt-to-GDP ratio will continue to grow throughout the early 2020s.

“The epidemic has been an exceptional event in the economy and society. When it becomes clear that Finland is moving into the post-epidemic period, it would be justified to shift the focus of the economic policy from acute crisis management to strengthening the conditions for economic growth and stabilising public finances,” said finance ministry’s Economics Department Director-General Mikko Spolander.

The clear recovery of the economy from the coronavirus epidemic will be postponed until 2021, as the second wave of the epidemic will temporarily slow down economic growth around the turn of the year.

The continuing coronavirus epidemic and measures taken by the government to support businesses, citizens, and the economy will keep the general government deficit at a high level in 2021.

In addition, the postponement of non-urgent care during the epidemic is resulting in a service and healthcare backlog that will increase upward pressure on health and social services expenditure after the epidemic subsides.

The general government debt-to-GDP will grow to 69% in 2020. In 2021, the growth in the debt ratio will slow as the epidemic recedes and the economy recovers.

However, the imbalance between general government revenue and expenditure as well as increases in spending due to population ageing will continue to increase the debt ratio also in the coming years. The general government debt-to-GDP ratio is expected to be 75% in 2025.