(Recasts with alternative scenario, adds comments, background)
HELSINKI, April 16 (Reuters) - Finland’s Finance Ministry forecast the economy on Thursday to contract by at least 5.5% in 2020, and said it could shrink by as much as 12% if restrictions related to the coronavirus were to last for six months.
“Everything depends on how deeply the economy plunges and how long it stays there. The danger is that the longer the economy suffers, the greater the difficulty in reviving it,” the ministry’s Director General of the Economics Department Mikko Spolander said in the statement.
The ministry slashed its previous estimate of 1.0% growth from December.
Its new forecast now includes a main scenario under which coronavirus measures are relaxed after three months. It predicts the biggest drop in the country’s gross domestic product to take place in the second quarter of this year, after which growth would pick up.
Under the more severe scenario, in which the coronavirus restrictions remain in place for six months, the government’s fiscal deficit would rise to more than 10% of GDP this year, it wrote.
The ministry raised its GDP growth forecast for 2021 to 1.3% from 1.1% and to 1.3% from 1.2% in 2022.
Last week, Bank of Finland updated its own estimate, forecasting the economy to contract between 5% and 13% this year due to the coronavirus outbreak.
The bank’s governor, ECB governing council member Olli Rehn, called for the government to use the public balance sheet “at full volume” to maintain economic activity despite rising general government debt during the crisis.
The government followed suit a week ago and agreed an additional 3.6 billion euros of spending this year and another 500 million over several years, while calculating its tax revenue to weaken by 4.7 billion this year.
The extra expenses incurred by the coronavirus outbreak are expected to raise the government’s net borrowing requirement in 2020 to at least 12.7 billion euros from a previously estimated 3.28 billion. The figures exclude additional needs that will be defined in May. (Reporting by Anne Kauranen and Tarmo Virki; Editing by Alison Williams and Peter Graff)