Perspectives

A resilient, but not very dynamic, economy

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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1
FINLAND  
A RESILIENT, BUT NOT VERY DYNAMIC, ECONOMY  
In Q2 2020, Finland stood out from the rest of Europe as the country that reported the smallest decline in GDP –  
only” –4.4%. Yet the ensuing recovery was less vigorous than for its EU neighbours, and Finland will surely continue  
to underperform in the months ahead. Even so, the Finnish economy is still one of the most resilient in Europe, thanks  
notably to the relatively feeble spread of the virus and robust support from the fiscal and monetary authorities.  
In the first half of 2020, Finland was not hit as hard economically as  
most other developed countries. The country did not suffer as much  
from the pandemic, which allowed the authorities to impose less  
stringent restriction measures than in most other European countries.  
GROWTH AND INFLATION (%)  
GDP Growth  
Forecast  
.9  
Inflation  
Forecast  
4
3
2
1
0
.0  
.0  
.0  
.0  
.0  
THE ECONOMIC SITUATION IN 2020  
2
2.2  
Nonetheless, the economic recovery in the second half of 2020 has  
been weaker than in the rest of Europe. The Finnish economy was  
already showing signs of weakness before the Covid-19 crisis started,  
and GDP even contracted in Q4 2019. In particular, exports dropped  
sharply, which is likely to be the main factor behind the decline in GDP  
this year. The Ministry of Finance, the European Commission and the  
OECD all expect exports to fall by about 12% this year.  
1.4  
1
.1  
1.1  
1.1  
0.4  
-
-
-
-
-
1.0  
2.0  
3.0  
4.0  
5.0  
Considering growth in 2020 as a whole, it is worth comparing Finland  
with its Nordic neighbours. In the first half, GDP in Sweden and Denmark  
-4.3  
2020  
2019  
2021  
2022  
2019  
2020  
2021  
2022  
plummeted by 8.1% and 8.3%, respectively, while it declined by “only”  
1
5
.7% in Finland. However, in its Autumn Economic Forecast , released  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
in November, the European Commission expects GDP to decline more  
sharply in Finland than in Denmark or Sweden in 2020 as a whole,  
which means that the economic recovery will be more vigorous in these  
latter two countries. Moreover, the European Commission expects this  
trend to continue in 2021 and 2022 (see chart 2).  
EUROPEAN COMMISSION GDP FORECASTS (%)  
4
3
2
1
0
1
2
WHAT TO EXPECT NEXT YEAR AND AFTER?  
The Finnish economy is not expected to return to its pre-crisis level  
particularly quickly. One reason is that the second wave of the pandemic,  
which is currently sweeping Finland and its European trading partners,  
is bound to slow the economic recovery further. Indeed, although  
the recent announcements concerning the effectiveness of different  
vaccines against the virus raise hopes that the crisis will wind down in  
the months ahead, a third wave of the virus could hit Europe before a  
vast vaccination campaign can be rolled out.  
-
-
Finland  
Sweden  
Denmark  
2022  
-3  
-
-
4
5
In any case, the Finnish economy should be able to count on the  
monetary and fiscal authorities to provide the necessary support to  
return to sustainable growth.  
2020  
2021  
CHART 2  
SOURCE: EUROPEAN COMMISSION  
At its December meeting, the European Central Bank (ECB) further  
eased its monetary policy stance, notably by increasing the envelope  
of its asset purchase programme by EUR 500 bn and by extending its  
of GDP. The government’s draft 2021 budget suggests that these will  
still be worth nearly 1% of GDP in 2021. That is because while private  
consumption and exports are expected to support growth in  
2
horizon for net purchases until at least March 2022 .  
the months ahead, certain segments of the economy could take much  
3
In its Autumn Economic Survey , the Ministry of Finance forecasts that  
4
longer to recover from the crisis. In its latest Economic Outlook , the  
the deficit will swell to 7.7% of GDP in 2020. Although it should narrow  
in the following years, the deficit is still expected to be near 3% of GDP  
in 2024. In comparison, it stood at only 1% of GDP in 2019. In 2020,  
the support measures put in place by the government to tackle the  
sanitary and economic crises have amounted to a little more than 2%  
OECD anticipates that it will take a long time for investment to return  
to pre-crisis levels. Moreover, according to the Ministry of Finance, the  
unemployment rate could hit 8.2% next year, and will still be above  
7
.5% in 2024.  
Completed on 10 December 2020  
The bank  
for a changing  
world  
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