The Finnish economy slipped into recession last autumn as a result of the energy crisis brought on by Russia’s war in Ukraine. The economy's weak performance will continue this year, as it takes time for the effects of high inflation and the rise in interest rates to be felt in full.
Climate change is forcing the economy to transit towards a more sustainable future. Transition risks are related to the process of adjustment to a low-carbon economy. Granular data are needed to analyse the transition risks.
Russia’s invasion of Ukraine has cast a new veil of gloom over the outlook for Finland’s economy. In the two scenarios, the war in Ukraine will increase inflation and slow Finland’s GDP growth in the current year between 0.5% and 2%. The economic impact could be prolonged.
The IMF’s new comprehensive Climate Strategy is a clear signal that the IMF intends to meet the challenge of climate change. The new Climate Strategy emphasizes the significant impacts that climate risks, climate policy actions as well as adaptation and transition needs will have on macroeconomic stability and envisions integrating climate change into most surveillance and capacity development activities.
The shock of the COVID-19 pandemic and the associated deterioration in the economic outlook has exacerbated solvency concerns and increased the risks of debt restructurings in low-income countries (LICs).
Due to climate change, extreme weather events will become more frequent, resulting in material damage to buildings and other infrastructure. In Finland, for example, this will probably increase the risk of coastal floods.
According to the Bank of Finland’s assessment, Finnish GDP will contract by 4.7% in 2020. Even though the recession appears to be shallower than feared in the spring, it is still deep, and recovery will be slow.
There are no immediate threats to the stability of the Finnish financial system. The relocation of Nordea’s corporate headquarters will, however, increase the banking sector’s exposure to structural vulnerabilities.
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