In the latest economic survey, the Finnish economy will shrink but still less than in most European countries.

The economy is dragging slightly behind, but measures to stimulate the output are underway. Photograph: Tony Öhberg/Finland Today

In the latest economic survey, the Ministry of Finance forecasts that the Finnish economy will shrink by 4,5% this year, reflecting a contraction in three consecutive quarters due to the coronavirus pandemic.

Nonetheless, the ministry reports that the pandemic “caused less damage to the Finnish economy in the first half of the year than it did to most other European economies.” Still, they also warned that recovery is slow, and the new wave of coronavirus cases again leaves the economy at a turning point.

While GDP is projected to gradually recover in the next two years and private consumption is expected to go up the fastest, the growth in consumption of private sector services, investment, exports and industrial production will likely be slow.

“The recovery threatens to be delayed if households and businesses take a gloomier view of the way ahead. Only effective treatment or a vaccine will bring a clearer outlook,” said Mikko Spolander, director-general of the economics department at the Ministry of Finance.

Private consumption is expected to go up the fastest.

The substantial growth of debt in public finances is also a cause for concern. Government finances were already in deficit before the recession, and the ratio of debt to GDP is set to go up in the upcoming decade for various structural reasons, such as increased public expenditure due to an aging population.

The pandemic has of course put the entire global economy into a recession, but indicators suggest a recovery will be felt from the third quarter of 2020 onward. The global economy will have shrunk by more than 6% but is expected to grow by 5,5% the following year.

The ministry’s forecast points out that the economic outlook is largely connected with the outlook about the pandemic. If there is uncertainty about the coronavirus situation, this would inevitably produce uncertainty in the economy and slow down economic growth, “even without actual new restrictive measures.”

“A resurgence of the virus is the most significant risk factor in the forecast. The extent of the economic impact of a second wave would depend not only on the government measures taken to mitigate the epidemic and support the economy, but also on how these actions affect the multitude of economic decisions taken throughout the country,” the ministry noted in a press release.

On a positive note, measures to stimulate output have either been introduced or are currently being prepared by the Finnish government, as well as the European Union. These are projected to have a positive effect on production in the months ahead.