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Russia’s war in Ukraine is weakening the outlook for the Finnish economy. It is also further driving up inflation. Economic uncertainty and rising prices are undermining consumption and investment.

Finland’s cost competitiveness has strengthened in recent years, but it has yet to fully recover to the level attained before the financial crisis. Improving cost competitiveness is especially important now, when companies are searching for new markets to replace lost trade with Russia.

Russia’s war in Ukraine threatens to push Finland and the entire euro area economy into recession. Disruptions in energy availability and supply chains may turn out to be more severe than anticipated, and market rates could rise more rapidly than expected.

Over recent decades, Finnish households have constantly accumulated debt in relation to their income. The household DTI ratio is projected to stabilise in the immediate years ahead as the growth in the housing loan stock abates.

Manufacturing industries, in particular, are suffering from supply chain problems and rising costs. The results of a business survey show that the majority of companies believe they can replace the lost volume of exports to Russia with new markets.

Inflation is climbing, and interest rate rises will start soon. Household purchasing power was growing for a number of years, but now the situation is different. If we have the patience to look beyond the inflation spike, then competitiveness can be retained and the purchasing power of employees can be strengthened in future years.

The Finnish economy will grow 1.7% in 2022 and 0.5% in 2023.

Russia’s war in Ukraine is curbing economic growth worldwide. Finnish households will reduce their consumption of products and services due to uncertainty and rising prices.