The Finnish economy is expected to grow 3% in 2021, following a challenging period for the global economy. Economic growth in Finland is primarily driven by increased employment and personal consumption. This post will explore these factors in more detail and consider potential risk factors that could slow growth.
Consumption is driving growth
One of the major driving factors behind Finland's economic recovery in 2021 is private consumption. Even though it contracted in 2020 due to households saving their disposable incomes, it is expected to grow by 3.3% in 2021.
Economic uncertainty has begun to wane, so it is projected that consumers will now start to spend again. Such expectations are good news for businesses, many of which suffered because people saved around 5% of their disposable income in 2020. Such practices are usual in times of economic uncertainty.
As is the case in many countries, E-commerce has increased its share of trade with more people spending their money online than in physical businesses. Households have been buying more of their essentials online than ever before over the past year.
With more time being spent indoors, people are consuming entertainment online also. Examples of this are digital streaming services and online gambling. In December of 2020, total card payments returned to the same level as the previous year.
However, many service sectors have yet to benefit from the increased spending drive. Some sectors are suffering 30% slower business than previous years. These include industries like hospitality, tourism and transportation. Recovery in these areas will contribute to improved economic conditions in Finland.
Increased employment is driving growth
In late 2020, the number of people employed and the total salaries and wages rose back to the level of 2019. This represents a rapid recovery for Finland's employment figures. The country's workforce is growing, which is a rarity in times of economic uncertainty. In particular, the proportion of working people aged over 55 has shown continued growth.
This employment growth represents an increase of around 2%. Alongside relatively moderate inflation, this is what is boosting consumer purchasing power in 2021. Despite the encouraging employment statistics, there were still approximately 86,000 more unemployed people in November 2020 than the previous year.
Sectors that are currently struggling include transportation and hospitality. However, the unemployment rate is forecast to return to its 2019 level by the end of 2022.
What are the factors that could slow economic growth in Finland?
If Finland's key trading partners' economies deteriorate, this could harm their economic recovery. Low productivity and an ageing population could also weigh heavily on long-term growth in the country.
Also, government debt due to the recession, and increased spending on areas such as unemployment support, could slow growth. This is compounded by the fall in tax revenues resulting from higher unemployment rates over the past year.
However, with global conditions improving gradually and Finnish exports and key domestic industries set to recover in 2021, the overall outlook for Finland's economy is relatively positive. This is especially true in relation to the rest of the euro area, which has seen a more significant economic downturn in recent times.