Perspectives

Entering recession

EcoPerspectives // 2nd quarter 2020  
26  
economic-research.bnpparibas.com  
Finland  
Entering recession  
Economic activity will plummet under the impact of the Covid-19 pandemic, but not only via the export channel. The recession could  
become more virulent if household consumption and production channels were also to freeze up. In addition to the ECB’s monetary  
policy support, the government will also try to use fiscal policy to buffer the shock and limit the decline in employment.  
Through 2019, the Finnish economy was still looking good, even  
1
- GDP Growth and inflation  
though growth was slowing. A major boat shipment bolstered  
exports, while GDP growth, at 1.5%, exceeded the European  
average. In 2020, the global economy has come to a standstill due  
to the Covid-19 pandemic, which will drive Finland into recession,  
the size of which is yet to be seen.  
(
Y/Y, %)  
GDP Growth  
Forecast  
Inflation  
Forecast  
5
4
3
4.3  
As activity declines, a fiscal stimulus is launched  
2
1
0
1
2
3
1.7  
1
.2  
1.1  
1
0.9  
A major supplier of capital goods and refined oil (one of its top  
export items), Finland has been particularly hard hit by the  
shutdown of global supply chains. The decline in exports, notably to  
its eurozone trading partners (47% of total exports), and the  
downturn in corporate investment spending will be the main drivers  
of the recession. Last year’s decline in the number of building  
permits (down 17.7% y/y in Q4 2019) was already a warning signal  
for residential investment, which is also expected to decline.  
0.3  
-
-
-
-
3
-4  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
Source: National Statistics, BNP Paribas  
Finnish households will be holding back on purchases.  
Implementation of the Competitiveness Pact, which curbed wage  
growth, had already begun to erode consumer confidence, and the  
index fell sharply in March when it became clear that the country  
would not be spared the Covid-19 epidemic. Declining household  
consumption could accentuate the drop-off in GDP in 2020.  
In evaluating the economic impact of the Coronavirus pandemic, the  
Finnish central bank has drawn up two scenarios. If the economy is  
hit solely by plummeting exports, then stimulus measures should  
suffice to limit the recession to an average annual decline of 1.5% in  
2020 GDP. Yet if household consumption also slumps, then the  
decline in GDP would be closer to 4%.  
Fiscal policy is still neutral for the moment, but the government will  
take a more expansionist stance to counter the crisis. In addition to  
ECB measures to support liquidity and finance the economy, the  
coalition government (with the Social Democrats in the majority)  
adopted a private sector rescue package totalling EUR 15 bn (6.4%  
of GDP). It calls for direct transfers to small businesses and social  
security organisations as well as measures to reduce and/or defer  
corporate charges, such as the EUR 910 m reduction in employer  
pension contributions in 2020.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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