Etla slashes forecast for Finnish economy by a point to 2.1%

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Etla slashes forecast for Finnish economy by a point to 2.1%

Etla Economic Research has revised down its growth forecast for the Finnish economy for this year by a percentage point to 2.1 per cent, citing the Russian invasion of Ukraine. (Aku Häyrynen – Lehtikuva)

ETLA Economic Research on Thursday revealed that it has downgraded its growth forecast for the Finnish economy for this year by one percentage point to 2.1 per cent primarily due to the war of aggression waged in Ukraine by President Vladimir Putin’s Russia.

“It is a direct consequence of the war of aggression initiated by Russia, but to a small extent also of inflation accelerating faster than expected,” said Markku Lehmus, the head of forecasting at Etla.

The war will inhibit economic growth through at least three mechanisms, according to him. It increases economic uncertainty, possibly delaying investment and recruitment decisions. Although the uncertainty is also reflected in oil prices, the most significant detrimental impact arises from the economic sanctions imposed on Russia.

“This could be described as a foreign trade-induced shock to foreign trade,” described Lehmus.

Lehmus reminded that forecasts are presently associated with considerable uncertainty because it is impossible to accurately predict how the war will continue and what kind of indirect effects it will have.

Etla continues to expect that the national economy will expand by one per cent in 2023.

Finnish exports, the forecast indicates, will increase by roughly 5.5 per cent this year and 5.0 per cent next year. While the sanctions will reduce the exports of food, electronics, equipment and machinery, the exports of services are expected to grow this year by as much as 16 per cent as a result of tourism recovering in Europe.

Investments will increase by about 3.5 per cent in 2022 and almost 3.0 per cent in 2023.

Private consumption will grow by a few per cent this year as service consumption recovers from the moratorium imposed by the coronavirus pandemic, supported by rises in income and modest employment growth.

Increases in housing and transport costs, which both depend pronouncedly on energy, are expected to push inflation to 3.3 per cent in 2022. There is pressure for price increases also in food. The rise in consumer prices will slow down to 1.9 per cent next year because of an anticipated decline in energy prices.

The economic shock caused by the war will be softened by the solid labour market situation in Finland, predicts Etla. The ranks of the employed are projected to swell by about 32,000 and the average employment rate to creep up to 73.5 per cent by the during the course of the year. The expansion of the labour force – a positive surprise last year – will slow down and the unemployment rate will drop to 6.8 per cent in 2022.

Etla estimated that the skills and labour shortage have become bigger-than-expected obstacles to employment growth.

The most notable risks associated with the forecast are linked to the security policy landscape and the persisting bottlenecks in global logistics and supply chains, surges in raw material prices and further mutation of the new coronavirus.

Aki Kangasharju, the CEO of Etla, said he is also concerned about the government’s unwillingness to adopt additional measures to raise the employment rate meaningfully.

“The deterioration of the security situation will place further emphasis on sound financial management. Reforms and employment measures would be vitally important at this point in time. The current line cannot shield Finland against population ageing and the threat of war,” he commented.

Aleksi Teivainen – HT

Source: www.helsinkitimes.fi

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