The economy is performing weakly, and there are a number of reasons for this. Higher prices and interest rates continue to be a strain on household consumption. Investment is low. Residential construction, for example, is on hold. Consolidating Finland’s public finances is more challenging than expected.
In recent years, with the ECB’s asset purchase programmes and credit granted to banks, the ECB’s deposit facility rate has become the principal policy rate. The gradual reduction in the asset purchase programmes and in the volume of credit have prompted the ECB to review how it will control short-term money market interest rates in the future.
Growth in Finland’s economy will stall temporarily due to Ukraine war and energy crisis. High inflation is weakening consumers’ purchasing power and general confidence in the economy. In the public finances, spending will continue to exceed revenues.
Inflation, or the rise in the general level of prices, has accelerated due to the rise in commodity prices and the recovery in the economy. Inflation will slow next year. Monetary policy will be used to ensure that inflation remains stable.
The vaccinations will ease the virus situation and at the same time stimulate economic growth. Households will be able to consume more freely once the pandemic eases. The economy is also growing elsewhere around the world and this will boost Finland’s exports.
Cash payments have been on the decline for years now, but the pandemic has accelerated the process. Mastering new payment methods will require financial literacy. Authorities must make sure that new services are secure.
The banks have coped well during the pandemic and have been able to provide credit to businesses and households. Very long loan durations are a cause for concern. New tools are needed to rein in the build-up of debt.
Vaccines bring hope of an end to the COVID-19 crisis, but recovery will be slow. In the immediate years ahead, household consumption will drive the economy, but exports and investment will remain sluggish.
The corona pandemic has seriously weakened the euro area economy and the outlook remains uncertain. Recovery will be affected by e.g. how successful the balance between the virus and the economy turns out to be, and how quickly confidence improves.
In Finland monetary policy is implemented by the Bank of Finland. Central banks have traditionally conducted monetary policy through interest rates. These days, they stimulate the economy by lending to banks at favourable terms and purchasing securities.
The corona crisis will have a deep impact on the Finnish economy. Exports are importnt to Finland, and the contraction in exports will damage the economy. With households also consuming less, businesses, and therefore employment, will suffer.
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