According to the Ministry of Finance and Bank of Finland, the Finnish economy will enter a recession in 2023.

by Mapping Returns

According to THE MINISTRY of Finance, a recession will hit Finland’s economy in the first quarter of 2023.

Last month, the Ministry of Finance released its most recent economic estimate, which showed that it anticipates the gross domestic product to decline by 0.2% in 2023 before increasing by 1.2% in 2024 and 1.4% in 2025.

However, the economy won’t return to the rate of expansion that was anticipated before to the Russian invasion of Ukraine.

At a news conference in Helsinki on December 20, Janne Huovari, a financial counsellor at the Ministry of Finance, was cited as saying, “We do think that inflation will slow down considerably during the course of next year and that consumption will recover in 2024.”

Due to the raw material prices stabilising at more acceptable levels and the easing of supply chain constraints brought on by the pandemic, the rise in consumer prices is anticipated to slow from about 7% this year to 4% next year. Consumer costs are predicted to increase by about 2% between 2024 and 2025.

According to the Ministry of Finance, this year’s public debt as a percentage of GDP will drop by about a percentage point to 71.7%. Financial advisor Jenni Pääkkönen attributed the decline to the increase in tax revenue brought on by strong economic development and a stable employment environment.

According to Mikko Spolander, director general at the Ministry of Finance, Finland’s economy entering a recession is not as concerning as it would be were it to continue on a downward trajectory for an extended length of time.

“The need for welfare services is growing, but there aren’t enough personnel to meet it. There is a significant need for skilled labour in the health and well-being services industry, as well as generally in other economic sectors. Helsingin Sanomat cited him at the press conference as adding, “Economic resources are also shifting from stagnant sectors to growth sectors slower than in other Nordic nations, and productivity is improving slower than in these peer countries.

On December 16, the Bank of Finland also stated that it anticipates the country’s economy to enter a recession as a result of the energy issue and the sharp rise in living expenses. It predicted that Finland’s gross domestic product would decrease by 0.5% in 2023 but increase by 1.1% in 2024 and 1.5% in 2025.

“Private spending will be hampered in the future years by high inflation and declining buying power. Indebted families may have to significantly reduce their consumption due to the deteriorating buying power and interest rate increases brought on by high inflation, according to Meri Obstbaum, the Bank of Finland’s head of forecasting.

The monetary authority predicts that consumer prices would increase by 5% in 2019 before levelling off at about 2% in 2024–2025.

Consumer purchasing power as well as business and consumer confidence in the economy are being eroded by high inflation. Businesses will be extremely cautious when making investment decisions due to the economic unpredictability, dim economic outlook, and rising cost of financing.

According to the Bank of Finland, at worst, the Russian invasion of Ukraine could result in a 3.6% decline in Finnish GDP in 2023.

However, its more upbeat baseline prediction emphasised the alleviation of raw material and component shortages gradually as well as interruptions in international freight flow.

“As inflation declines, consumer purchasing power rises and economic ambiguity disappears. It will increase consumption and strengthen the economic growth foundations, according to Obstbaum.

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