Bank of Finland interim forecast: Energy crisis will shrivel growth in Finnish economy

Russia’s war in Ukraine has led to an energy crisis in Europe. This energy crisis is scaling back the outlook for Finland’s economy, according to the Bank of Finland’s interim forecast published today. Exceptionally high inflation is diminishing households’ purchasing power and consumer confidence is at a very low ebb, curbing private consumption.

Growth in Finland’s economy for the full year 2022 is nevertheless forecast to be 2.2% following a robust start to the current year. However, the outlook for the country’s economy deteriorated during the summer. The energy crisis and rising inflation are increasing the risk of a recession. With the economy slackening, negative growth of -0.3% is forecast for 2023, while in 2024 the economy will grow again, by 1.1%.

Inflation will remain high. The upward pressures on consumer prices will not subside until next year, when the rise in energy prices will slow and demand weaken. Inflation will rise to 7 per cent this year and will still be more than 4% in 2023. Uncertainty surrounding the inflation forecasts is substantial as a result of Europe’s energy crisis.

The tailwind behind the labour market is expected to subside as the economy falters, signalling an end to the favourable employment trend. This response may be dampened somewhat as a result of the troubles experienced by businesses in obtaining skilled labour, as they may look to hold on to staff despite the difficulties in the economy. Overall, the employment rate will decline slightly in 2023.

The biggest risks associated with the forecast concern the path taken by the energy crisis. A greater than anticipated rise in energy prices and a prolonged high inflation rate in relation to the forecast would further weaken households’ purchasing power and growth in the economy.

•  Interim forecast for the Finnish economy (in Finnish)

Further information:

Head of Forecasting Meri Obstbaum

meri.obstbaum@bof.fi

+358 9 1832363