According to Nordea, additional measures need to be implemented to address the increasing trend of public finances indebtedness. The bank has lowered its forecast for Finland’s economic growth next year due to the government’s implementation of additional adjustment measures. Instead of growing by two percent as earlier predicted, Nordea now anticipates that Finland’s GDP will grow by only 1.5 percent next year.
The government’s decision on tax increases and spending cuts is expected to improve public finances by approximately three billion euros. However, Nordea predicts that these adjustment measures will slow down the recovery of consumers’ purchasing power, which will negatively impact GDP growth. Despite these challenges, the bank anticipates a turnaround in the economy with factors such as inflation slowdown, improved household purchasing power, and central bank interest rate cuts boosting economic growth.
Last year, Finland experienced one of the weakest economic developments in Europe due to rising mortgage rates affecting household purchasing power and freezing housing construction. This trend is expected to continue as the housing market continues to adjust to increased supply and interest rates while keeping housing and construction prices stable. Private consumption is predicted to grow this year as inflation slows down, and the export industry will benefit from increased global economic growth.
Nordea believes that additional adjustment measures are necessary to curb public finances’ indebtedness even if they might temporarily slow economic growth. Private consumption is expected to increase next year, improving retail trade and services and boosting consumer confidence. The bank expects that a drop in interest rates will partially offset the effects of adjustment measures on domestic consumption ultimately leading to a reversal in the growth of the debt ratio next year. In conclusion, Nordea’s assessment suggests that while additional adjustment measures are essential to address public finances’ indebtedness, they may impact economic growth in the short term but ultimately lead to an anticipated return of growth this year with factors like inflation slowdown and improved export demand playing a significant role in this turnaround.
