Housing and real estate trading has continued despite the economic uncertainty. The rapid rise in prices and lending growth are increasing the vulnerabilities of Nordic banks.

A larger share than before of new housing loans have been granted to highly indebted households. Large amounts of debt are particularly common among households in the growth centres. A debt-to-income cap would rein in excessive indebtedness.

Based on an analysis by the Bank of Finland, the introduction of a debt-to-income cap would have only a moderate impact on long-term economic growth. A debt-to-income cap could dampen economic fluctuations when compared with the current loan-to-value cap.

Housing company loans are increasing household indebtedness and altering the structure of debt. A loan-to-value limit of 60% would reduce housing-purchasers’ substantial accumulation of debt via housing company loans.

The Bank of Finland and Financial Supervisory Authority’s new stress-testing framework can be used to assess the ability of Finnish banks to cope in severe domestic or Nordic economic crises.

COVID-19 has ravaged the banks less than feared. Growth in non-performing loans would weaken banks’ ability to extend credit. A number of methods have been suggested to reduce the number of non-performing loans.

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.

As a result of digitalisation, the number of different companies providing consumer credit and corporate finance services in Finland has increased. This has aroused concerns about increasing indebtedness among households and companies.

The goal of the Bank of Finland’s climate work is to spread knowledge and debate around sustainable finance and to enhance expertise in this area.

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.

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.

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.

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.

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.

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.

In the short term, the main uncertainty is how fast India recovers from the pandemic.