Articles on the economy
In this scenario, presented as an alternative to the Bank of Finland’s economic forecast, it is assumed that the economic recovery will be delayed and that growth will be slower than in the baseline scenario. Finland's economy will be almost 2% smaller in 2028 under the alternative scenario than in the baseline scenario.
When the Bank of Finland produces forecasts for the Finnish economy, the main tool it uses is Aino, which is a dynamic stochastic general equilibrium (DSGE) model. The article describes the forecasting process, the features of forecasting models and their key role in economic analysis at the Bank of Finland.
Along with many other European countries, Finland intends to increase its defence spending. This would increase Finland’s public expenditure and spur economic growth. The larger the share of defence procurements purchased from within the euro area, the more favourable the impact.
At the turning points of business cycles, economic recovery has often turned out to be faster than forecast. Growth could pick up if consumers’ confidence in the economy and in their own finances were to strengthen more than expected and exports to grow more quickly than forecast.
A wage-price spiral may occur in which prices and wages rise and ultimately GDP growth slows down.
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.
In the Bank of Finland forecast, the COVID-19 crisis is not expected to cause such a deep recession as experienced in the financial crisis, and recovery will be faster. The virus could, however, leave long-term scars on e.g. employment, the capital stock and productivity.
Global uncertainties are weakening investment growth in Finland. A similar effect is being exerted by structural factors in the domestic economy.
Abundant construction in the Helsinki metropolitan area has put a brake on apartment prices.
Output is growing faster than its potential and the Finnish economy is expected to remain at its cyclical peak during 2018–2020.
In both the United States and the euro area, economic growth has picked up and the labour market has strengthened without the build-up of significant wage and price pressures. This raises the question as to how far the economy can still be from its potential output.
The expanded asset purchase programme has also had a significant effect on price developments: in its absence, inflation in 2016 would have been much slower.