Forecast: Finland’s budget deficit to continue to breach EU rules in 2025

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				Forecast: Finland’s budget deficit to continue to breach EU rules in 2025

Mikko Spolander, the director general at the Ministry of Finance, reacted at the launch event of the ministry’s latest economic forecast in Helsinki on Monday, 23 September 2024. Spolander stated that although the national economy is set to resume growth next year, the outlook for government finances does not inspire similar confidence. (Vesa Moilanen – Lehtikuva)

THE FINNISH ECONOMY has begun to recover from the recession, according to the Ministry of Finance.

The Ministry of Finance on Monday unveiled its latest economic forecast, revealing that it expects the national economy to contract by 0.2 per cent this year but expand by 1.7 per cent in 2025 and by 1.5 per cent in 2026.

Other major forecasts point to a contraction of 0.2–0.5 per cent this year and to growth of 1.1–1.8 per cent in 2025–2026.

The recovery, it stated, will be fuelled especially by the impact of easing inflation and declining interest rates on the purchasing power and consumption of households. Also export demand will start picking up on the back of an improved outlook for the eurozone and continuing strong growth in the US. Even the construction industry will move onto a growth trajectory after faltering for a sustained period of time.

Demand and consumption, though, will simultaneously be curtailed by the ongoing government effort to consolidate public finances.

“It seems that the patience of those waiting for an upward turn will be rewarded,” Mikko Spolander, the director general at the Ministry of Finance, remarked in a press release on Monday.

“However, the outlook for general government finances does not inspire similar confidence. Even though the deficit is shrinking and indebtedness is slowing down, public finances will remain close to the risk limit.”

While the economic recovery, together with the fiscal adjustments made by the government, will start chipping away at the general government deficit in 2025, the national debt burden will continue to grow at a brisk pace.

The deficit is forecast to stand at 3.7 per cent of gross domestic product in 2024 and at 3.2 per cent in 2025 – in breach of the three-per-cent limit imposed by the European Union.

The government is on track to fall well short of the one-per-cent, end-of-term target set for the deficit in the government programme. The Ministry of Finance expects the deficit to stand at 2.3 per cent in 2027, representing a shortfall of roughly four billion euros from the target.

Spolander on Monday refused to comment on whether further belt-tightening measures will be necessary to reach the target, stressing that the government itself will choose how to prioritise its various targets and evaluate whether further measures are required.

Speculation about whether the government is prepared to tighten the belt further in the framework session next spring has intensified over the summer as opinion polls fan concerns about how certain ruling parties will fare in the county and municipal elections scheduled for next April.

The Ministry of Finance forecasts that the employment situation will continue to worsen this year but start improving once the economy has resumed growth in earnest.

“During the course of the summer, there’ve been positive signs that the decline in employment and increase in unemployment has come to a stop. When output picks up pace later this year and next year, we do expect that it’ll have a delayed impact on employment,” Janne Huovari, a financial advisor at the Ministry of Finance, said at a news conference on Monday.

Labour supply, he pointed out, has remained fairly solid despite the decline in employment as a result of immigration and government measures.

“[Immigration] has brought quite a lot of folk to our labour market. In fact, the working-age population has clearly started growing over the past year contrary to population forecasts,” he commented.

Yet, the Ministry of Finance expects real unemployment to remain above structural unemployment until 2026. Structural unemployment refers to unemployment caused by a mismatch between the skills of job seekers and the needs of employers, meaning it does not decline during a labour shortage.

Aleksi Teivainen – HT

Source: www.helsinkitimes.fi

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