Finland country note: OECD Economic Outlook, May 2021

52 

Finland With the third COVID-19 wave and the associated containment measures receding, economic growth is projected to increase to 2.6% in 2021 and 2.7% in 2022, led by consumption and exports. Business investment should strengthen in 2022 as uncertainty abates. Output will regain the pre-pandemic level by late 2021 and employment by mid-2022. The main risk to the outlook is that further virus waves could delay the recovery.

If there is a relapse in sanitary conditions, temporary support to reduce business costs should be extended.

To encourage employers to limit use of the temporary layoff scheme to viable jobs, employers should contribute to the benefit costs of their furloughed employees. Once the recovery is firmly established and the pandemic has subsided, a medium-term fiscal strategy will be required to stabilise the debt-to-GDP ratio.

Containment measures are being progressively relaxed The third COVID-19 wave in Finland peaked in March. Since then, new cases and admissions to intensive care have fallen by more than half, to low levels by international comparison. By mid-May, 44% of the adult population had received a first vaccine dose, the highest proportion amongst EU/EEA countries but considerably lower than by global leaders, although only 5% had received the second dose. Sanitary conditions permitting, the strict border controls introduced in mid-March will be progressively eased from May, when commuter traffic within the European Union will resume, and June, when internal border controls will end. Food and beverage outlets were closed in early March in areas where the pandemic was accelerating and reopened in late April with tougher restrictions on capacity and opening hours than in less affected areas. These restrictions were eased in most parts of the country in mid-May and will be relaxed further as the sanitary situation improves.

Finland The third COVID-19 wave is abating

Confidence and projected lower saving will fuel consumption

Covid-19 patients in hospital

Number 200

Balance 15

Specialised medical care

% of disposable income 15

← Consumer confidence indicator (CCI)¹

Primary health care

180

Household saving ratio →

Intensive care

160 140

10

10

5

5

120 100

0

Long-term average²

0

80 60 40

-5

-5

-10

-10

20 0

Jan-21

Feb-21

Mar-21

Apr-21

0

-15

2017

2018

2019

2020

2021

2022

-15

1. Actual data until April 2021.

2. The long-term average of the consumer confidence indicator is -1.8.

Source: OECD Economic Outlook 109 database; and Finnish Institute for Health and Welfare; Statistics Finland.

StatLink 2 https://stat.link/d9wlep

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

 53

Finland: Demand, output and prices 2017

Finland GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1,2 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation3 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

2018

2019

2020

2021

2022

Percentage changes, volume (2015 prices)

Current prices EUR billion

226.3 120.3 51.6 52.8 224.7 1.5 226.2 85.0 84.9 0.1

1.3 1.8 1.8 3.5 2.2 0.5 2.8 1.4 5.6 -1.6

1.3 0.7 2.0 -0.9 0.6 -0.8 -0.1 6.7 2.2 1.7

-2.8 -4.9 2.3 -3.1 -2.8 0.1 -2.5 -6.6 -6.6 0.0

2.6 3.5 2.3 -0.4 2.3 0.0 2.2 5.4 4.5 0.3

2.7 3.1 0.0 3.0 2.3 0.0 2.3 5.7 4.7 0.4

_ _ _ _ _ _ _ _ _

1.9 1.2 0.3 7.4 -0.8 -0.9 72.8 59.7 -1.8

1.5 1.1 0.7 6.7 0.5 -0.9 72.9 59.5 -0.3

1.7 0.4 0.5 7.8 5.6 -5.4 85.3 69.2 0.3

1.4 1.8 1.1 7.7 3.6 -4.2 91.9 73.5 0.6

1.4 1.5 1.4 7.0 1.5 -1.8 96.1 77.0 1.0

1. Contributions to changes in real GDP, actual amount in the first column.

2. Including statistical discrepancy.

3. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

Source: OECD Economic Outlook 109 database.

StatLink 2 https://stat.link/rd4n7s

The third COVID-19 wave has temporarily slowed the recovery The economy ended 2020 on a strong note, with fourth quarter GDP only 2% below the pre-pandemic level. However, the resurgence of the pandemic and the measures to contain it subdued growth in economic activity and employment in early 2021. Nevertheless, the unemployment rate fell to 7.8% in the first quarter of 2021, still well above the 6.9% pre-pandemic rate. Most of the increase in unemployment in the past year reflects a rise in long-term unemployment. The number of persons furloughed also increased, but remains far below the levels during the first virus wave. Consumer confidence has rebounded to the highest level since mid-2018. Industrial production expectations improved at the turn of the year, and order books are recovering.

Temporary support measures will expire by end-2021 The bulk of temporary support expenditures in response to COVID-19 were for businesses. The government subsidised business costs and development expenditures and directly supported the food and beverage service sector; it also provided loan guarantees and temporary loans for research, development and innovation. These support measures will expire by the end of 2021. Most other temporary support measures expired at the end of 2020, including exceptional conditions for accessing the temporary layoff scheme, temporary measures increasing the generosity of earnings-related unemployment benefits and the temporary reduction in employer pension contributions. However, the increased amounts of earnings

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

54  allowed before deductions to unemployment benefits are made was extended until 30 June as was benefit eligibility for the self-employed. Special bankruptcy relief ended in February 2021.

Consumption and exports will lead the recovery Economic growth is projected to accelerate to 2.7% in 2022 as containment measures unwind and progress in vaccination proceeds. The substantial fiscal stimulus in 2020 will continue to support growth this year as will grants from the EU Recovery and Resilience Facility; these are assumed to total EUR 270 million in 2021 and EUR 550 million in 2022 and, including trading partner feedback effects, to boost growth by 0.3 percentage point in both years. Households will reduce saving as uncertainty diminishes, supporting the recovery. Exports will also strengthen this year as recovery takes hold in export markets, with business investment boosting growth in 2022 as uncertainty about the economic outlook recedes. Employment growth will strengthen through 2022, reducing the unemployment rate to the pre-pandemic level by end 2022. Inflation will jump to 1.8% this year, boosted by commodity price increases, supply shortages and excise tax increases before easing to 1.5% in 2022 as these temporary factors pass. The main downside risk to these projections is a deterioration in business conditions due to further waves of the virus. Upside risks include more favourable sanitary conditions.

Extending temporary support for business costs if sanitary conditions deteriorate would help to sustain the recovery Should sanitary conditions deteriorate markedly, the government should extend temporary support for reducing small business costs as such support in 2020 was found to be most effective in limiting declines in profitability and increasing wages and salaries paid. To encourage employers to limit temporary layoffs to jobs they believe can be restarted, employers should be required to contribute to the unemployment benefit costs of their furloughed employees.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021