Meri Ostbaum, the head of forecasting at the Bank of Finland, discussed the central bank’s latest economic forecast at a press conference in Helsinki on Tuesday, 9 June 2020. (Markku Ulander – Lehtikuva)

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THE SHORT-TERM OUTLOOK for the Finnish economy seems very bleak.

The Bank of Finland on Tuesday announced it expects the national economy to contract by seven per cent this year due to the blow delivered by the coronavirus pandemic and take at least a couple of years to rebound to the levels before the crisis.

“A quick recovery is not looking particularly likely, and the total output will fall short of the level before the pandemic-induced crisis,” it said. “The economy is forecast to grow by around three per cent in 2021–2022.”

Not all businesses, it added, will be able to weather the crisis.

“Permanent production losses are unlikely to be avoided in Finland. Economic policy making is nevertheless a way to have an impact on the scope of the losses,” underlined Meri Ostbaum, the head of forecasting at the Bank of Finland.

Employment in Finland will according to the forecast decrease by roughly two percentage points in 2020–2021 before rebounding, only partly, in 2022. The unemployment rate, meanwhile, is forecast to increase to 9.0 per cent this year and further to 9.3 per cent next year, before decreasing to 8.8 per cent in 2022.

The Bank of Finland pointed out that the pandemic has resulted not only in a sharp decline in domestic demand and net exports, but also in a harmful structural shift by making the economy increasingly dependant on public demand.

Foreign trade, it said, will not support economic growth during the forecasting period, as the outlook for exports remains pronouncedly muted due to a pandemic-induced lull in global investments and the eroding competitiveness of Finland. Uncertainties about the future will similarly inhibit increase in consumption and investments even after the lifting of restrictions.

The forecast is associated with substantial uncertainties, the central bank reminded.

Its alternative scenarios suggest that the economy may contract only five per cent or as much as 11 per cent in 2020, depending on how the coronavirus epidemic progresses and how effectively it is brought under control in different parts of the world.

Aleksi Teivainen – HT