Forecast: The economy will recover from the pandemic, but even after recovery, growth will be slow The economic downturn in 2020 will be smaller in Finland than in the rest of the euro area, but this winter will still be difficult. Private consumption will cause an upturn in growth in 2021, but long-term growth prospects are sluggish. Share Email Twitter Facebook Linkedin Google+
A fragile recovery from the pandemic crisis has begun The euro area economy contracted 15% in the first half of the year. Rapid and powerful economic policy measures have mitigated the damage caused by the pandemic, but there is still substantial uncertainty and recovery will take time. Share Email Twitter Facebook Linkedin Google+
The depths of the COVID-19 crisis, and the recovery 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. Share Email Twitter Facebook Linkedin Google+
Attention should already be turned to the post-crisis years Debt will not be halted even when the economy begins to grow again. Moreover, the sustainability gap is now larger. A post-crisis change of direction in the public finances is required. Share Email Twitter Facebook Linkedin Google+
Economic policy must live in two time frames at once Economic policy in Finland must find a way to live in two time periods at once. While we are currently combating an acute crisis, we must at the same time direct our thinking strongly towards the economic challenges of the post-crisis years. Share Email Twitter Facebook Linkedin Google+
Forecast tables for 2020-2023 (December 2020) COVID-19 will gradually be left behind in the course of 2021 due to the vaccines, and private consumption will generate growth of 2.2% in the Finnish economy. This will strengthen to 2.5% in 2022. Share Email Twitter Facebook Linkedin Google+
Accessible summary: The economy will recover from the pandemic, but even after recovery, growth will be slow 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. Share Email Twitter Facebook Linkedin Google+
Consumer confidence foreshadows developments in the economy Consumer confidence has long been depressed by weak assessments of the outlook for the Finnish economy. Changes in consumer confidence can foreshadow a turning point in the economy and they therefore attract close attention. Share Email Twitter Facebook Linkedin Google+
Short-term economic outlook has deteriorated drastically in Finland, Sweden and Germany The Finnish, Swedish and German economies weakened almost simultaneously in March. The latest indicators show signs of a pick-up, but uncertainty will slow the recovery. Share Email Twitter Facebook Linkedin Google+
Companies respond to the corona crisis by adjusting labour costs Most Finnish companies have suffered a drop in turnover as a result of the corona crisis. Service industries are hard pressed. Cost adjustments and funding arrangements have saved jobs. Share Email Twitter Facebook Linkedin Google+
The worst-case scenario in the corona spring did not materialise, but we will still need stamina for the long haul Healthy public finances provide an irreplaceable shield when we hit hard times. It is important to focus the fiscal policy stimulus effectively and take forward structural reforms. Finland’s labour market, too, has a vital role to play as the economy enters the recovery phase. Share Email Twitter Facebook Linkedin Google+
Forecast tables for 2020–2022 (June 2020) The Finnish economy will contract by around 7% this year and grow around 3% per annum over the next 2 years. The forecast contains a large degree of uncertainty – the contraction could be only 5% or as much as 11%, depending on how the pandemic develops. See forecast tables for the Finnish economy in 2020–2022 (June 2020). Share Email Twitter Facebook Linkedin Google+
Corona crisis has increased the risk of stagnation in the euro area Is the euro area drifting into a liquidity trap (a combination of low interest rates and low inflation) as a consequence of the corona crisis? There is a heightened risk of this, but the policy measures taken are preventing negative trends. Share Email Twitter Facebook Linkedin Google+
Economic uncertainty continues, recovery expected to be uneven 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. Share Email Twitter Facebook Linkedin Google+
The trade war has significantly weakened the global economy According to the Bank of Finland’s model simulations, the tariff rises already introduced will serve to slow global growth by 0.7 of a percentage point. Share Email Twitter Facebook Linkedin Google+
Only very subdued growth in sight Global growth has slowed substantially during the course of the current year. One cause of this has been the trade war between the United States and China. Brexit, too, has added to the uncertainty surrounding the future course of the economy. Share Email Twitter Facebook Linkedin Google+
Euro area productivity growth could slow further in the event of a downturn Euro area productivity growth has been slowing since the turn of the millennium. Economic policy that bolsters stability in the economy is a vital factor for productivity growth. Share Email Twitter Facebook Linkedin Google+
Outlook deteriorated rapidly – can this be turned around? The economic outlook for the euro area has deteriorated rapidly. The impact of Brexit on Europe as a whole is hard to predict. Another factor overshadowing the global economy is the trade dispute between the USA and China. Share Email Twitter Facebook Linkedin Google+
Dollar dominance means US risks also pose risks to others The dominant position of the US dollar exposes other countries to changes in the economy and domestic policies of the United States. As the dollar has no realistic competitors, we cannot foresee any near-term change in its status. Share Email Twitter Facebook Linkedin Google+
Alternative scenarios linked to the global impact of US fiscal and trade policies The Bank of Finland has calculated alternative scenarios on the effects of risks to the global economy. In these scenarios, global growth weakens more abruptly than currently forecast. Share Email Twitter Facebook Linkedin Google+
Slower economic growth worldwide The summary provides a simple introduction to the assessment of developments in the global economy and monetary policy presented in the March edition of the Bank of Finland Bulletin. Share Email Twitter Facebook Linkedin Google+
European Central Bank strengthens monetary policy accommodation – ECB monetary policy strategy needs to be reviewed A review of the ECB’s monetary policy strategy is due in light of the latest economic research and the changed operating environment. Share Email Twitter Facebook Linkedin Google+