Eco Perspectives

Resilient

07/06/2021
PDF

Although Finland was one of the European countries hit the least by the Covid-19 pandemic, its economic recovery was nonetheless pushed back by a third wave of contaminations in late winter 2020 and early spring 2021. The economy will rebound in the second half of this year, buoyed by consumption and the upturn in global trade. GDP growth should range between 2.5% and 3% in 2021 and 2022. Very concerned about the solidity of its public finances, the country saw its public debt swell by about 10 points of GDP last year while the deficit rose to 5.4% of GDP.

Recovery in sight

GROWTH AND INFLATION (%)

Like its Norwegian neighbour, Finland is one of the countries that was spared the most from the Covid-19 pandemic, with one of the lowest Covid infection rates in Europe (175 deaths per million inhabitants at mid-June). Even so, Finland was hit by a third wave of the pandemic that was slightly more severe than the previous ones, which led the authorities to tighten health restrictions last winter. This temporarily halted the economic recovery and led to a mild downturn in Q1 GDP.

The health situation is now under control again and social distancing restrictions are gradually being lifted. Moreover, Finland has managed to reach a high vaccination rate, with over 55% of the population having received at least one dose of the vaccine at 20 June. The economy apparently began to rebound in May, and everything suggests that the recovery will accelerate in H2 if the pandemic continues to ebb nationally and across Europe.

GDP GROWTH AND ECONOMIC SENTIMENT

Last year, given the pandemic’s low infection rate, industry was not affected much by the problems of factory shutdowns or supply chain disruptions, so industrial activity is now poised to benefit from the rebound in global demand. Household spending is expected to act as a second growth engine for the recovery, as consumption is stimulated as of this summer by the lifting of social restrictions and by the accumulation of forced and precautionary savings during the pandemic. In the end, business sentiment has surged in recent months and is now approaching the cyclical peak of year-end 2017. After a mild contraction in 2020 (-2.8%), GDP growth is expected to rise above 2.5% this year and in 2022.

Mobilisation of public finances

Throughout 2020, the Finnish government adjusted and reinforced healthcare spending as necessary to combat the pandemic while adopting measures to support companies through a total of seven supplemental finance bills. The fiscal deficit rose to 5.4% of GDP, the highest level since 1995 and 4.5 percentage points higher than in 2019. The public debt ratio rose even further, up 10 percentage points to 69% of GDP, swollen by measures with no impact on the fiscal balance, such as tax deferrals, loans and capital injections.

Only part of last year’s emergency measures were extended into 2021. According to the European Commission, temporary fiscal expenditures pertaining to the pandemic could be reduced to about 1.5% of GDP, down from 3% in 2020, which would allow the fiscal deficit to begin to consolidate this year and the public debt ratio to begin to level off.

THE ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Global
Looking beyond peak growth

Looking beyond peak growth

The first half of the year has seen a broad-based improvement in business and consumer sentiment in advanced economies but elevated levels of business surveys reduce the likelihood of further significant increases [...]

Read the article
United States
Is inflation back?

Is inflation back?

With GDP growth of nearly 7% this year, the US economy is in the midst of a spectacular but uneven recovery, erasing the losses generated by the pandemic, but also leaving numerous workers behind [...]

Read the article
China
The economic recovery is still mixed

The economic recovery is still mixed

Economic growth rebounded very rapidly following the Covid-19 shock, but this rebound has also been characterised by mixed performances between sectors and between demand components [...]

Read the article
Japan
A lagging economic recovery

A lagging economic recovery

The Covid-19 pandemic did not hit the Japanese economy as hard as the other advanced countries. In 2020, GDP growth did not contract as much as in other places [...]

Read the article
Eurozone
A stronger recovery, higher inflation and an accommodating ECB

A stronger recovery, higher inflation and an accommodating ECB

The Eurozone economy is bouncing back. From a macroeconomic perspective, the region is closing the gap on the losses accumulated since spring 2020 more quickly than expected just a few months ago [...]

Read the article
Germany
Change in climate

Change in climate

After a sharp contraction in Q1 2020, the economic climate improved significantly in Q2, as the domestic economy gradually opens up [...]

Read the article
France
Robust rebound

Robust rebound

Based on May and June business confidence surveys, the French economy has been rebounding more vigorously than expected from the third lockdown. We have raised our Q2 growth forecast, from near zero to near 1% QoQ [...]

Read the article
Italy
The recovery is gaining strength

The recovery is gaining strength

At the beginning of 2021, the economic growth surprised on the upside. In Q1, real GDP rose by 0.1%. Private consumption declined, reflecting the disappointing evolution of income and a still high propensity to save, investment rose by almost 4% [...]

Read the article
Spain
Economic acceleration in sight

Economic acceleration in sight

Just when the lights seemed to be turning green on the health front, the spread of the Delta variant in Spain, as elsewhere in Europe, is a cause of concern [...]

Read the article
Belgium
Strong recovery, but at the cost of higher public debt

Strong recovery, but at the cost of higher public debt

The Belgian economy grew at an above-potential rate in the first quarter of this year, and looks to be on course to maintain this pace throughout the year. Full year growth is expected to come in at 5.1% [...]

Read the article
Greece
Mixed signals

Mixed signals

The Greek economy is proving resilient, with the recovery through to Q1 2021 being faster than in most other Eurozone members. This has been driven primarily by the very significant increase in goods exports [...]

Read the article
United Kingdom
A poor start

A poor start

No sooner had the divorce agreement with the European Union been signed than the UK started disputing its terms [...]

Read the article
Switzerland
Competitiveness threatened

Competitiveness threatened

The very accommodative policies implemented by the Federal Council and the Swiss National Bank have been very successful in limiting the economic consequences of the pandemic. In 2020, economic activity contracted by 3% [...]

Read the article
Norway
An economy ready for take-off

An economy ready for take-off

Largely spared by the Covid-19 pandemic, Norway reported one of the mildest recessions in Europe in 2020 (-2.5%) [...]

Read the article