In light of the increasing trend of public finances indebtedness, Nordea has lowered its forecast for Finland’s economic growth next year. The bank now predicts that Finland’s GDP will grow by 1.5 percent instead of the earlier estimate of two percent, due to the government’s decision on additional adjustment measures such as tax increases and spending cuts. These measures are expected to strengthen public finances by around three billion euros.
Nordea estimates that Finland’s GDP will contract by 1 percent this year but is expected to recover and grow during the rest of the year. However, they suggest that the government’s additional adaptation measures will slow down the recovery of consumers’ purchasing power, which may impact GDP growth. Despite these challenges, Nordea 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. Nordea expects that the housing market will continue to adjust to increased supply and interest rates, keeping housing and construction prices stable. They predict that private consumption will grow this year as inflation slows down, and the export industry will benefit from increased global economic growth.
Nordea believes additional adjustment measures are necessary to curb public finances’ indebtedness even if they might temporarily slow economic growth. They predict that private consumption will increase next year, improving retail trade and services and boosting consumer confidence. The bank expects that a drop in interest rates will partially offset the effects of adjustment measures on domestic consumption, ultimately leading to a reversal in the growth of the debt ratio next year.
In conclusion, Nordea suggests that while additional adjustment measures are crucial in addressing public finances’ indebtedness, they may impact economic growth in the short term. However, with factors like inflation slowdown, improved household purchasing power, and a boost in export demand, Finland’s economy is anticipated to return to growth this year.