Finland drifted into recession last autumn, largely caused by an energy crisis prompted by Russia’s invasion of Ukraine, and economic growth will continue to be quite weak this year, according to the Bank of Finland.
The central bank said that it will still take some time before the effects of recent ballooning inflation rates are fully felt in the economy.
The institution also noted that it expects the ongoing recession will be “short-lived and shallow,” but that turbulence in international financial markets is contributing to economic uncertainty and possibly, weaker economic growth than expected for Finland.
“Finland’s economy has held up so far, despite the difficulties, but the full effects of high inflation and elevated interest rates have not been seen yet. Risks in the global economy have also grown again in just the past few days,” the central bank’s chief forecaster, Meri Obstbaum, said in a press release issued on Friday.
Interest rate to remain elevated
The central bank had previously reported that Finland’s economy grew by 2.1 percent last year, thanks to a strong start of the year. However, it said that Russia’s invasion of Ukraine and the ensuing energy crisis reversed that trend.
According to the Bank of Finland’s interim forecast, the Finnish economy will contract by 0.2 percent this year, with “fairly weak” levels of growth in coming years.
Friday’s report also stated that “interest rates will remain elevated and no quick recovery is expected in the demand for Finnish exports.”
The Finnish economy will grow by 0.9 percent in 2024 and 1.5 percent the following year, the bank added, projecting that inflation will be around 4.6 percent and upward pressure on consumer prices will ease up.
“The rise in the prices of services and consumer goods will also gradually slow and inflation will return to below two percent in 2024,” the press release said.