Forecast: Finnish economy to grow by only 0.5% due to war in Ukraine
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THE WAR in Ukraine will put a stop to economic recovery in Finland, forecasts Pellervo Economic Research (PTT).
The Finnish economy is forecast to grow by only 0.5 per cent this year and by roughly a per cent next year if the war drags on, continuing to inhibit foreign trade, drive up consumer prices and overhaul the structures of the global economy.
“The economy was recovering at a solid pace from the coronavirus pandemic, but Russia’s brutal offensive has changed not only the security but also the economic landscape. The war will have a substantial economic impact both in the short and longer term,” Markus Lahtinen, the managing director of PTT, stated on Tuesday.
The Finnish economy will suffer from the war through a decline in exports, increases in raw material prices and worsening supply-chain issues. The economy, on the other hand, will receive a boost from the planned increases in defence spending and acceleration of the energy transition in Europe.
The forecast is associated with considerable uncertainty, the research centre acknowledged. The Finnish economy could grow by about three per cent this year if the war ended relatively quickly but also slide into a recession if the war escalated.
“Vladimir Putin’s administration staying in power poses a major risk for Finland. It would have serious long-term consequences also for the economy,” told Janne Huovari, the head of forecasting at PTT.
“The country risk would increase, and Finland could be left on the periphery logistically.”
While inflation was expected to slow down in the second half of the year before the invasion, energy prices are presently expected to remain high, raw material prices to increase and food prices to surge as problems with supply chains exacerbate at least temporarily.
PTT is forecasting that consumer prices will rise by 5.0 per cent in 2022 and by 2.5 per cent in 2023.
The employment rate is expected to creep up to 74 per cent in the first half of the year but start deteriorating in the latter half due to the war-induced economic challenges.
Finnish exports to Russia have already plummeted by 70 per cent due to the war waged by President Vladimir Putin’s Russia. The exports could dry up virtually altogether if the war prolonged, delivering a heavy blow to the economy despite the decline seen in trade with Russia since 2014.
“Finnish companies are searching for new markets, but because so is everyone else, finding them will be difficult,” said Huovari.
PTT called for discipline and prudence from decision-makers also this time of crisis.
“We have to make all necessary investments in defence and security of supply, as well as to help the refugees. But the spending increases must be for measures necessitated by the crisis. Now is also not the time for broad-based tax cuts. Fiscal policy must not be made into yet another