THE FINNISH ECONOMY is losing momentum faster than expected.
OP Financial Group on Tuesday published its latest economic forecast, revealing that it expects the national economy to contract by 0.3 per cent this year and tread water next year before rebounding by 1.2 per cent in 2025.
The economy has hung on relatively well amid the uncertainty on the back of savings built up by households during the coronavirus pandemic. Economists at OP Financial Group point out, though, that construction and manufacturing are both on a steep decline, while the income growth of households has failed to compensate for the dwindling of household savings and shrinking of disposable income due to rising interest rates.
Finnish exports, meanwhile, are faltering due to timid growth in export markets and significant price drops.
“The Finnish economy has been headed toward a moderate recession so unhurriedly that one could well call it a soft landing. Unfortunately, the economy is landing on a soft surface and uncertainty is notable,” Reijo Heiskanen, the chief economist at OP Financial Group, said on Tuesday.
Inflation in Finland has slowed down, but core inflation – that is, inflation excluding highly volatile food and energy prices – has slowed down less significantly, the financial services provider said. While the situation will continue improving, reaching the target of two per cent will take time.
Heiskanen stated to YLE on Tuesday that the situation bears semblance to Wile E. Coyote, an animation character that regularly runs off the edge of a cliff and is suspended mid-air until recognising the situation and falling.
The Finnish economy is not likely to fall into the bottom of the canyon, though – after all also the coyote occasionally manages to grab onto a branch or the edge of a cliff, he reminded.
“We’ll experience quite a moderate fall. Beneath is a fairly safe ledge on which the coyote will fall,” he said. “The times are uncertain, the economy will regress slightly, unemployment will increase slightly. But there won’t be too much drama.”
Aleksi Teivainen – HT