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Danske Bank has revised its economic forecast for Finland downwards for 2024, after the Finnish gross domestic product (GDP) contracted more than expected in 2023, extending the recession into the early part of 2024. However, the economy is anticipated to recover towards the end of the year, buoyed by declining inflation and interest rates, along with a resurgence in export demand.

According to Danske Bank's economic outlook, Finland's GDP is set to decrease by 0.4% this year.

This adjustment reflects a slightly more negative outlook than the bank's previous forecast of 0.3% growth for the current year, especially after the last quarter of 2023 performed weaker than anticipated. Initially, the GDP was estimated to have contracted by 1.0% in 2023.

The first quarter of 2024, marred by strikes, is expected to underperform expectations. However, as the year progresses, the economy is predicted to show signs of revival. Despite the current recession, a boost in private consumption and exports, fueled by falling inflation, is expected to drive economic growth throughout 2024. The economic uncertainty prevailing this year will likely result in cautious consumer spending and an increase in the savings rate.

Finnish purchasing power is maintained by robust labor markets, which have largely remained unaffected by the downturn. Although some sectors are reducing their workforce, many companies still face labor shortages, and wages are rising faster than in previous years.

"Inflation and interest rate declines will enhance consumers' purchasing power, but economic uncertainty will continue to restrain purchasing decisions. We anticipate the release of pent-up demand to boost consumption in durable goods and the housing market as summer approaches," says Pasi Kuoppamäki, Chief Economist at Danske Bank.

Turning the public debt ratio downwards has proven more challenging than expected. Despite the Finnish government's efforts to balance public finances through adjustment measures, the deficit remains substantial, and the debt ratio continues to rise.

"The magnitude of the adjustment need will act as an additional brake on the economy in the coming years. In the long term, adjustments will secure the sustainability of public finances, and reforms will enhance conditions for economic growth," Kuoppamäki adds.

Global Economic Downturn Receding

The global economy has shown modest growth over the winter, but industrial indicators have finally begun to signal a recovery after a prolonged downturn. Gradual easing of labor shortages is fostering confidence in the stabilization of inflationary pressures, although geopolitical tensions periodically disrupt commodity and freight prices. Particularly in the United States, economic performance has exceeded expectations, and generous fiscal policy is expected to continue supporting growth regardless of this year's election outcomes.

"Stronger-than-feared economic figures at the start of the year have led the market to temper expectations for swift interest rate cuts. However, we believe Western central banks will start cutting rates next summer, anticipating a total of three rate cuts from both the ECB and the Fed this year," concludes Danske Bank analyst Antti Ilvonen.

HT

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