Mikko Spolander, the director general of the Ministry of Finance, reacted at a news conference in Helsinki on Tuesday, 19 December 2023. Spolander said the Finnish economy is in recession that looks set to be deeper and longer than expected earlier. (Markku Ulander – Lehtikuva)
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THE MINISTRY of Finance has pared back its expectations for the economy.
The Finnish economy will be in recession this year, with the gross domestic product forecast to contract by 0.5 per cent, and grow by 0.7 per cent next year as the combination of slowing inflation and declining interest rates prop up the purchasing power of consumers.
Both growth rates represent a 0.5-percentage-point downgrade from the forecast published in October.
Mikko Spolander, the director general at the Ministry of Finance, on Tuesday highlighted at a news conference that although the economic situation is expected to improve next year, the economy will resume growth fully fit.
“Finland is now in recession, and the recession is set to be deeper and longer than expected,” he remarked. “The outlook for the public economy has been bleak for a while, and it’s still hard to see light at the end of the tunnel. Unpleasant surprises and price and interest rate increases have clogged the economy’s blood flow in a situation where the economy was already in need of an angioplasty.”
The Ministry of Finance expects the economy to grow by 2.0 per cent in 2025 and 1.6 per cent in 2026.
Helsingin Sanomat pointed out that the forecast is particularly significant because of its impact on government policy, with a bleak forecast adding pressure to resort to cost savings. Provisional estimates suggest that the eroding economic situation could necessitate hundreds of millions worth of additional belt-tightening measures as soon as next year.
The Finnish government has laid out cost savings and employment measures worth billions in an attempt to improve the budgetary position to slash the deficit in the public economy to no more than one per cent of GDP by 2027.
While the Ministry of Finance is apparently not convinced the objective can be reached, its forecast does not take into account all policy plans. Spolander on Tuesday said the objective has slipped further from grasp partly because economic recovery has been delayed.
“Our forecast indicates that implementing the government programme in its full extent wouldn’t be enough to reduce the deficit to the target of one per cent […] or to reverse the rise in public debt relative to total output in 2027,” he said.
Officials from the Ministry of Finance declined to provide an estimate of the scope of necessary measures, though.
“I can’t provide a figure in billions, but it’s presumably a bit worse relative to autumn,” commented Jenni Pääkkönen, a financial advisor at the Ministry of Finance. “There’s a lot of time before 2027, and our forecast contains quite a bit of uncertainty.”
The Ministry of Finance viewed that the general government sector will continue to show a budget deficit in excess of three per cent for a number of years to come. Finland could therefore be entered into the excessive deficit procedure of the European Commission, a procedure that enables the commission to steer member states off the debt track if it appears that the state itself is incapable of doing so.
The forecast also has some positive news. The rise in consumer prices will slow to an average of two per cent in 2024 and below two per cent in 2025–2026. Real income will start growing next year, but the impact on purchasing power will be limited due to an increase in unemployment and cuts in social security benefits.
Aleksi Teivainen – HT
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Source: www.helsinkitimes.fi
