In the latest economic forecasts, Nordea expects the Finnish economy to get off to a tough start this year, but expect a significant turnaround towards the end of the year. The expected improvement is due to a slowdown in inflation, which should increase household purchasing power and allow central banks to start cutting interest rates. However, the global economic situation remains fraught with uncertainty, influenced by geopolitical risks and unpredictability brought about by a busy election year.
Overcoming current economic challenges
As Finland prepares for a tough start to 2024, Nordea has revised its growth forecast for this year to -1% as high interest rates hamper economic growth. However, the central bank remains optimistic about a turnaround in the second half of the year, forecasting GDP growth of 2% in 2025. “Households facing increased mortgage interest spending and a deteriorating employment situation are expected to see weak domestic consumption in the first few months.” Inflation slows, tax cuts are implemented, and interest rates begin to fall. “The outlook for the year-end will be brighter, with purchasing power likely to improve,” economists say. juho kostiainen.
Inflation and interest rate expectations
A crucial factor in this economic scenario is that inflation rates in many countries have slowed more sharply than expected, paving the way for central banks, including the European Central Bank (ECB), to start cutting interest rates. . “We expect the ECB to start cutting interest rates by June. Ahead of that, the central bank will take a close look at labor market and wage trends. Wages are likely to rise rapidly again this year, but demand “These cost increases should not be fully reflected as the economy is weak,” he said. Turi KoivuChief economist at Nordea.
Global economic outlook amid geopolitical tensions
The global economy in 2024 remains under the shadow of geopolitical risks and political uncertainty, and recent developments in the Red Sea highlight the vulnerabilities of global production chains. “The role of the state in the economy has increased in recent years due to the pandemic, the green transition, and growing geopolitical uncertainty. As such, economists and market analysts are increasingly focusing on economic policies as well as national economic policies. “Also important is the outlook for the global economy, especially the US presidential election, which could have a direct impact on the investments of Finnish companies.” “Therefore, it is attracting attention,” Koivu predicts.
Housing market and productivity concerns
The Finnish housing market is currently characterized by weak demand and an oversupply of properties. Rising construction costs and falling prices for existing homes are making new construction projects unprofitable, leading to a reduction in housing construction. This situation is expected to improve slightly as new housing completions decline and demand increases due to population growth in urban centers and lower interest rates.
In terms of productivity, Finland has faced challenges that have hampered its growth over the past 15 years, lagging behind peers such as Sweden and the United States. “Finland now needs the courage to invest in technology, the development of business ideas and education, as well as to attract and retain skilled immigrants,” said Kostiainen, setting out Finland’s future path to economic recovery. emphasized.
Despite a rocky start, Finland’s economy is poised for a gradual recovery by the end of 2024, supported by easing inflation and favorable monetary policy. Addressing long-standing productivity and innovation challenges is critical to sustaining growth and increasing competitiveness in global markets.
HT