HELSINKI (Reuters) – The Finnish economy is in recession and will contract 0.2% this year, the Bank of Finland said on Friday, updating its forecasts which predict a return to growth of only 0.2% in 2024, down from its previous estimate of 0.9%.
The economic downturn will last longer than expected, driven by weaker export demand and a rapid slowdown in construction activity on the back of high interest rates, the bank said.
Construction accounts for some 15% of Finland’s gross domestic product and employs some 200,000 people, nearly 7% of the country’s workforce, making it important for the wider economy, Bank of Finland’s deputy governor Marja Nykanen told Reuters.
While the slowdown in construction and rising unemployment are harmful for the economy, Nykanen said she saw no systemic risk for the financial system from the construction industry for now.
Nordic banks are profitable and have buffers from credit loss provisions that were accumulated but not needed during the COVID-19 pandemic as well as from net interest income from high rates recently, she said.
“Swedish banks are exposed to real estate and housing financing, and when we have banks that operate across Nordic borders, contagion effects are possible,” she said, adding her bank was following closely the market turmoil in Sweden.
(Reporting by Anne Kauranen; Editing by Toby Chopra)
