Nordea: Additional Adjustment Measures Needed to Ease Public Finances’ Debt Burden, But Could Temporarily Slow Economic Growth in Finland

According to Nordea, the implementation of additional adjustment measures is necessary to address the trend of increased public finances indebtedness. The bank has revised its forecast for Finland’s economic growth next year down to 1.5 percent from their earlier estimate of two percent due to the government’s decision on tax increases and spending cuts. This move is expected to strengthen public finances by around three billion euros.

Nordea estimates that Finland’s GDP will contract by 1 percent this year but is expected to recover and grow during the rest of the year. They suggest that the government’s additional adaptation measures will slow down the recovery of consumers’ purchasing power, impacting GDP growth. Despite these challenges, the bank anticipates a turnaround in the economy with factors like inflation slowdown, improved household purchasing power, and central bank interest rate cuts boosting economic growth.

Finland experienced one of the weakest economic developments in Europe last year with rising mortgage rates affecting household purchasing power and freezing housing construction. Nordea expects that the housing market will continue to adjust to increased supply and interest rates, keeping housing and construction prices stable. They predict that private consumption will grow this year as inflation slows, 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. They predict that private consumption will 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. However, with factors like inflation slowdown, improved household purchasing power, and a boost in export demand, Finland’s economy is anticipated to return to growth this year.