Finland’s economy slid into a technical recession in the latter half of 2022, with demand taking a broad turn for the worse in the final quarter. A particularly steep downhill was experienced in exports and investments.
“Russia’s war of aggression and its resulting effects seem to have hit Finland’s economy harder than euro area economies on average. The weak development of net exports, the rising cost of living and the rapid interest hikes are whittling away at growth prospects”, says MuniFin’s Chief Economist Timo Vesala.
The unpredictable inflation development is causing uncertainty in the outlook in monetary policy and economy.
“The latest inflation figures again exceeded all expectations. The European Central Bank may have to hike its interest rates much more than it seemed at the start of the year”, Vesala notes.
MuniFin revised its inflation forecast for the current year from 4.5% to 5.0%. In 2024, we expect inflation to decrease to 2.3%.
MuniFin also projects how inflation, interest hikes and the aftermath of Finland’s recently implemented health and social services reform will reflect on the development of Finland’s municipal sector. MuniFin’s calculation of the pressures on municipal finances take into consideration the rising inflation and interest rate costs and it indicates that starting from 2024, the municipal finances will weaken more that the municipalities themselves have predicted.