Economic situation and outlook
The Labour Institute for Economic Research LABORE forecasts GDP growth of 1.8% this year, 0.7% next year, and 2.1% in 2024. The first half of the year still saw strong growth despite the lingering effects of the COVID-19 pandemic.
Russia’s aggressive war against Ukraine, extensive counter-sanctions, reluctance to trade with Russia, and the energy crisis have worsened the European economic outlook more than previously expected in the spring. Although the loss of trade with Russia is still expected to be largely offset by new import and export markets, weakening global growth will push the Finnish economy into a mild recession towards the end of the year. Growth is expected to resume next year.
Employment continues to develop positively in the remainder of the year, but the labour market weakens next year, though not dramatically, before recovering again in 2024. Inflation has been significantly faster than previously forecast. Wage sums have increased strongly in early part of the year, supporting private consumption and the recovery of service sectors after the pandemic, but real wages have nevertheless fallen sharply—last seen on a similar scale in the late 1970s.
Public finances remain in clear deficit due to new spending pressures linked to the war in Ukraine as well as expansionary fiscal policy, and government debt continues to increase. To curb inflation, monetary policy is being tightened in the euro area for the first time in a long period, leading to rising interest rates. The economic situation is unusually uncertain in several respects. (AI translation)
