Finnish economy hit by Ukraine war

Russia’s share of Finland’s total exports is only around 5%, but now the trade is collapsing due to the war. “Cost-competitiveness will play an important role in how companies can adjust as they try to find new markets to make up for lost business in Russia. If they do not succeed in this, the risk of a recession will grow,” said the Bank of Finland Head of Forecasting, Meri Obstbaum. [Shutterstock/esfera]

Finland’s economy was booming before the Russian attack on Ukraine, but now the war is starting to take its toll as economic growth is expected to reach 1.7% this year but will slow down to 0.5% in 2023 based on a forecast published by the Bank of Finland.

Russia’s share of Finland’s total exports is only around 5%, but now the trade is collapsing due to the war. “Cost-competitiveness will play an important role in how companies can adjust as they try to find new markets to make up for lost business in Russia. If they do not succeed in this, the risk of a recession will grow,” said the Bank of Finland Head of Forecasting, Meri Obstbaum.

The underlying theme of the forecast is uncertainty. Not only geopolitical risks but the continuation of the pandemic and the slowing down of China’s growth may hurt the Finnish economy.

“The investment boom that appeared to be on the horizon has been dashed by uncertainty. Factors deterring investment also include the shortages of materials and components faced by companies as well as rising prices and interest rates,” said Obstbaum.

Consumer prices are projected to rise by 5.6% in 2022.

Olli Rehn, the governor of the Bank of Finland, commented on the forecast to a business paper Talouselämä and called for calm and reasonable wage settlements. According to him, there is now “no justification for fiscal easing through across-the-board tax cuts or large-scale income transfers,” even if inflation is hitting real incomes and purchasing power.

In 2024, growth should pick up again to 1.5%.

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