The government’s decision to implement additional adjustment measures has led Nordea to lower its forecast for Finland’s economic growth next year, according to the bank. Originally, they predicted that the country’s GDP would grow by 2 percent, but now they estimate it will only increase by 1.5 percent. These measures are expected to strengthen public finances by around three billion euros.
Nordea also predicts that Finland’s GDP will contract by 1 percent this year before recovering and growing during the rest of the year. They suggest that these additional adaptation measures will slow down the recovery of consumers’ purchasing power, which will impact GDP growth. Despite these challenges, the bank anticipates a turnaround in the economy with factors such as inflation slowdown, improved household purchasing power, and central bank interest rate cuts boosting economic growth.
Last year, Finland experienced one of the weakest economic developments in Europe due to rising mortgage rates affecting household purchasing power and freezing housing construction. However, Nordea expects that the housing market will continue to adjust to increased supply and interest rates while keeping housing and construction prices stable. Private consumption is predicted to grow this year as inflation slows down, and the export industry is expected to benefit from increased global economic growth.
Nordea believes that additional adjustment measures are necessary to curb public finances’ indebtedness even if they might temporarily slow economic growth in the short term. The bank predicts that private consumption will increase next year, improving retail trade and services while boosting consumer confidence. They expect a drop in interest rates will partially offset any effects of adjustment measures on domestic consumption, ultimately leading to a reversal in the growth of the debt ratio next year.
In conclusion, Nordea’s assessment suggests that while additional adjustment measures are essential to address public finances’ indebtedness, they may impact economic growth in the short term. However, with factors such as inflation slowdown, improved household purchasing power, and an increase in export demand, Finland’s economy is anticipated to return to growth this year despite these challenges.
