Bank of Finland, Ministry of Finance confirm recession


  • World
  • Wednesday, 20 Dec 2023

HELSINKI, Dec. 19 (Xinhua) -- Finland is currently in a recession, the Bank of Finland and the country's Ministry of Finance confirmed on Tuesday. Both authorities have defined the decline in the gross domestic product (GDP) this year as 0.5 percent, but the Ministry is predicting a faster recovery from the slump next year.

The Bank of Finland has predicted that the decline will continue next year by 0.2 percent, whereas previously it had estimated a return to 0.9 percent growth.

The Ministry of Finance also downgraded its earlier projection of one percent growth for 2024, settling on 0.7 percent.

However, the Ministry improved its outlook for 2025 to 2.0 percent from its previous 1.8 percent forecast, while the Bank of Finland has predicted 1.5 percent growth in 2025.

Both organizations have underlined the importance of the decline in inflation, and the increase in purchasing power. The Ministry said real earnings will turn to growth in 2024, and although inflation will still be at 2 percent in 2024, it will decline in 2025.

Bank of Finland Head of Forecasting Meri Obstbaum noted that the current international economic environment is difficult, and the outlook for the Finnish economy worsened during the autumn. However, inflation has fallen, and the purchasing power of households has increased.

The Bank said that the economy is suffering from diminished investments, especially in housing, and unemployment will temporarily increase.

Both organizations see the public sector economy worsening. The Ministry has estimated that state and municipal total deficits in 2024 will grow to 3.5 percent of the GDP from the current 2.5 percent, with the financial problems of the new Finnish welfare regions being a contributing factor. In a 2022 reform, responsibility for public health was shifted from municipalities to regional entities, which receive funding from the state.

Minister of Finance Riikka Purra said that further adaptive measures would be required. "Also, taxation measures could be considered by the cabinet in the spring economic talks, to correct the public economy," she said.

"Based on the prognosis, the public sector would still show a 3 percent deficit in 2027, and further debt cannot be prevented without new adaptive measures," she added.

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