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.

Newest publication – Published 17 Sep 2020

Bank of Finland Bulletin 5/2020 – Monetary policy and the global economy

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4.50 MB – Release notes

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.

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.

Recession followed by slow recovery

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.

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The resilience of Chinese exports during the COVID-19 crisis

China was at the forefront of the COVID-19 crisis. As a consequence, the value of Chinese exports plummeted by 13% year-on-year at the first quarter of 2020.

Monetary policy is supporting economic recovery — but the outlook for employment remains weak

Monetary accommodation has opened up space for other economic policies in the euro area, which needs to be put to good use by pursuing economic reforms. Productivity and employment growth ultimately rest on our ability to reform.

Recent economic crises have modified the Bank of Finland's market operations

In recent years central banks have eased monetary policy by conducting large-scale asset purchases and offering banks credit on affordable terms. These measures promote price stability and facilitate economic growth and employment.

Implementation of monetary policy purchase programmes at the Bank of Finland

Asset purchases have become an integral part of conducting monetary policy. The Bank of Finland implements the Eurosystem’s purchase programmes in Finland. Asset purchases lower interest rates in markets.

Record amount of credit granted to Finnish banks

The Bank of Finland grants credit against collateral to Finnish banks. During the pandemic, credit operations have facilitated bank lending to businesses and households, and their uptake has been record-high.

No credit without collateral

In order for banks to obtain credit from the central bank, collateral is required. Collateral protects the central bank against risk. The ECB and Bank of Finland have eased their collateral requirements during the coronavirus pandemic.

Balance sheet risks in monetary policy implementation

Recent changes in the implementation of monetary policy have strongly expanded the balance sheets of the Eurosystem central banks. At the same time, balance sheet risks have increased.

The Bank of Finland manages its financial assets sustainably

The Bank of Finland manages about EUR 11 billion of financial assets. The Bank’s investment activities are guided by its central bank obligations and its ambitious principles of sustainable investing.

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