The Bank of Finland (BoF) has warned of an impending recession for 2023 in a press release published on Friday.
The organisation noted that while its forecasts said Finland's GDP will grow by 1.9 percent for the entirety of 2022, GDP was expected to shrink by 0.5 percent in 2023.
The bank pointed to the higher cost of living, inflation and the energy crisis exacerbated by the war in Ukraine as accelerants for the looming recession.
"High inflation and weakening purchasing power will cause private consumption to fall in the immediate years ahead. The decline in purchasing power and the rise in interest rates needed to control inflation will affect indebted households especially, and they may have to reduce their consumption significantly,” according to the BoF's Head of Forecasting Meri Obstbaum.
In its multi-year forecast, the bank said that it predicted that GDP would increase by 1.1 percent in 2024 and 1.5 percent in 2025.
While the GDP forecasts did not look promising, the forecast noted that inflation will slow to five percent in 2023. In the following years of 2024 and 2025, inflation will settle at two percent.
"As inflation slows, household purchasing power will improve and the uncertainty about the economy will subside. This will encourage consumer spending and strengthen the economy’s conditions for growth,” Obstbaum stated.
In addition, the bank said that the favourable conditions in the labour market are fading and that as GDP declines, the employment rate is forecast to temporarily dip in 2023. However, the organisation noted that it should rebound soon afterwards.
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