Perspectives

One of the most resilient economies in Europe

Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
2
0
FINLAND  
ONE OF THE MOST RESILIENT ECONOMIES IN EUROPE  
Finland’s economy was showing signs of weakness even before the Covid-19 pandemic started – indeed, GDP  
contracted a bit in the fourth quarter of 2019. In spite of that, the economy has been one of the most resilient in  
Europe. That is notably because the pandemic has been relatively contained, allowing the authorities to impose  
softer restriction measures. Another reason is the substantial support provided by the government.  
So far, Finland’s economy has been one of the least affected in Europe  
by the economic crisis triggered by the Covid-19 pandemic. In the  
second quarter, GDP contracted by « only » 4.5%. In addition, the  
recession in Finland will probably remain milder than in most other  
European countries.  
GROWTH AND INFLATION (%)  
GDP Growth  
Forecast  
Inflation  
Forecast  
4
2
0
.0  
.0  
.0  
2
.8  
First, Finland has been relatively spared from the pandemic itself.  
The mortality rate of Covid-19 in Finland is, at about 50 deaths per  
million population, among the lowest in Europe. Combined with the  
strong healthcare system, this has allowed the government to impose  
softer restriction measures than most other European countries – with  
the notable exception of Sweden – according to the Oxford Covid-19  
1.6  
1.0  
1.2  
1.1  
1.1  
0
.3  
-2.0  
-
-
-
4.0  
6.0  
8.0  
1
Government Response Tracker .  
-
6.3  
What’s more, the Finnish government has provided substantial support  
to the economy, including measures such as direct funding for firms, the  
extension of unemployment security, the extension of social benefits,  
and the temporary lowering of private-sector pension contributions.  
The Ministry of Finance estimates that these will be equivalent to about  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
2
.5% of 2019 GDP. The government has also pledged loan guarantees  
worth more than EUR 10 bn (4.2% of 2019 GDP), capitalisations, and  
the easing of payment terms for taxes due this year. Existing automatic  
stabilisers should also provide strong support to households and  
businesses by limiting income losses. In total, the IMF estimates that,  
combined with these stabilisers, the government package of fiscal,  
liquidity and regulatory measures will, if fully utilised, represent a  
boost of nearly 30% of GDP.  
When it comes to monetary policy, the European Central Bank has  
substantially eased its stance, notably by massively increasing its  
asset purchases as well as expanding and lowering the cost of its  
longer-term refinancing operations for credit institutions.  
However, weaker public finances could be an issue in the long term  
given the challenge that will arise from demographics. In 2014, the  
government enacted reforms raising the retirement age to 65 and  
linking it to life expectancy from 2027. Nevertheless, that might not  
be enough to balance the government’s books, given the rapidly ageing  
population. The old-age dependency ratio –the ratio between the  
number of people aged 65 or over and the working age population– is,  
at 36.0% in 2020, already among the highest in Europe. According to  
Eurostat data, the ratio will rise to nearly 50% by 2050 and to more  
2
than 60% by 2100 .  
Another area of mild concern is the household sector, where both debt-  
to-GDP and debt-to income ratios have increased over the past decades  
– even though the ratios are still much lower than the equivalent ones  
for Sweden and Denmark for instance.  
RISKS ARE TILTED TO THE DOWNSIDE  
While Finland’s economy seems well positioned to weather the crisis,  
it presents some weaknesses that could delay, or indeed derail, any That being said, debt sustainability risks are likely to remain limited in  
recovery.  
both cases as long as interest rates remain low.  
First, the country is highly reliant on intermediate goods, which makes  
it vulnerable to supply-chain disruptions. That could be a big drag on  
the economy if global trade failed to recover rapidly. In any case, the  
structural slowdown in trade that started with the global financial  
crisis is unlikely to end soon, and could thus become a slow-burning  
issue for this small and open economy.  
What’s more, Finnish public finances will come out of the crisis  
substantially weaker. The Ministry of Finance forecasts that the  
government deficit will exceed 8% this year, pushing the debt-to-  
GDP ratio up by nearly 12 percentage points to more than 70%. And  
it expects the ratio to keep rising after that. Admittedly, Finland can  
count on a still limited public debt burden, particularly compared to  
Southern European countries.  
1
2
https://www.bsg.ox.ac.uk/research/research-projects/coronavirus-government-response-tracker  
https://ec.europa.eu/eurostat/web/products-datasets/-/tps00200  
The bank  
for a changing  
world  
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.
Ce site présente leurs analyses.
Le site contient 2682 articles et 705 vidéos