HELSINKI (Reuters) - Finland’s rapid recovery from the economic crisis caused by the coronavirus looks unlikely, but the worst-case scenarios have so far been avoided, Bank of Finland governor Olli Rehn said on Tuesday.
The bank believes Finland’s gross domestic product will contract around 7% this year and grow around 3% in 2021 and 2022, but said GDP contraction could be as little as 5% or as much as 11% in 2020 in alternative scenarios.
“Finland has not experienced a sizeable wave of bankruptcies. Furlough schemes have meant that redundancies have remained fewer in number than initially feared,” Governor Olli Rehn said in a statement.
Rehn said the price of labour could prove crucial in determining the length of the crisis in a small country like Finland, heavily dependent on exports, which the bank expects to contract 15,8% this year.
Finland’s labour markets, with widespread collective agreements, are considered to be relatively stiff.
“In many countries, the price of labour responds rapidly to a weakening in the condition of the economy, unlike in Finland,” Rehn said, adding it could result in lost jobs.
The bank expects Finland’s unemployment rate to rise to 9% this year from 6.7% in 2019 and continue to rise to 9.3% in 2021, before declining to 8.8% in 2022.
The rise in unemployment will lead to a decline in tax yield and an increase in benefit expenses, while the government’s measures to shield the economy from the worst will also add to state indebtedness, the bank said.
It expects a record rise in the general government debt to 71.3% of gross domestic product this year, from 59.4% in 2019, and for it to continue rising, albeit more slowly, thereafter.
“Although the worst did not materialise, we will still need stamina for the long haul, in regard to both public health and the economy,” Rehn said.
Reporting by Anne Kauranen