Finland's economy has been hit by a technical recession and a surge in inflation, according to Statistics Finland. The economy shrank by 0.2 percent in the fourth quarter of 2022, making it two consecutive quarters of contraction. The decline was attributed to weakened expectations among both consumers and businesses, which began to be realized in the latter half of the year. Inflation reached 8.4 percent in January, affecting the purchasing power of consumers and businesses.
The economic consequences of the war in Ukraine have also had an impact on Finland's economy. From October to December 2022, the volume of Finnish exports decreased by 2.9 percent from the level in the previous quarter, while imports dipped by 2.4 percent. However, for the year as a whole, the Finnish economy grew by 2 percent compared to 2021.
The government and central bank forecast a small decline in GDP in 2023, of around 0.2 percent, before growth returns in 2024 and 2025, according to their latest forecast in December. But, experts warn that the forecast might be uncertain given the margin of error in economic predictions.
While Sweden has not seen two consecutive declines in GDP, its economy still shrank by 0.2 percent in the fourth quarter compared to the same period a year earlier, according to the national statistics office SCB. The decline was felt in many parts of the economy, with broad declines in business investment and household consumption. For the full year of 2022, the Swedish economy grew by 2.6 percent, the SCB said. The Swedish central bank expects GDP to fall by 1.1 percent this year, in line with the European average, according to its latest forecast published in early February.
Despite the technical recession in Finland and economic challenges in Sweden, economists suggest that the term "technical recession" is a poor indicator of the actual economic situation. Niku Määttänen, a macroeconomics professor at Helsinki University, said that there is no universally accepted definition of a recession in economics. Instead, the term should be used when there are significant and broad-based declines in economic activity across several key indicators, such as production, employment, consumption, and investment.
The big picture for Finland's economy is that it is expected to see a zero growth, in the coming year. The impact of inflation and economic consequences of the war in Ukraine on consumer and business confidence is expected to continue to affect economic growth in Finland. The uncertainty in economic forecasts highlights the need for caution in interpreting economic data and the importance of considering multiple indicators when assessing the health of an economy.