Gross domestic product (GDP) will contract somewhere between 5 percent and 13 percent in 2020, Olli Rehn, the Bank of Finland governor, said on Tuesday (April 7), according to slides on the bank’s website. Just three weeks ago, the bank thought the shrinkage would be no more than 4 percent.
“A fairly quick recovery remains possible if containment measures don’t need to be upheld for a long time and if a wave of bankruptcies and mass unemployment are averted,” Rehn said.
Finland’s economy has been flat since mid-March due to the pandemic. The country closed its borders, along with schools, restaurants and bars. Job losses have already affected over 13,000 people, and some 375,000 will be laid off in the coming days.
The government said rules will be eased after May 15 as long as the virus is contained. In this scenario, economic recovery is expected to move fast; the expansion rate in 2021 could be 6.9 percent in 2021.
“Realizing this scenario requires significantly boosting healthcare capacity to test, track and isolate the sick,” according to the central bank.
The current mandates and measures could carry on through September if containment plans don’t advance as planned. In this scenario, GDP could shrink by 10.3 percent this year.
During the financial crisis, Finland’s economy shrank by 8 percent. The record reduction was 16.1 percent in 1917, the bank’s historical data indicates.
“The Finnish economy began the year in a weak starting position even without the impact of the coronavirus. Economic growth slowed down last year and even contracted considerably during the fourth quarter,” according to a March 18 statement on the bank’s website. “In spite of favorable purchasing power developments and improved business profitability, private consumption remained muted and private investment contracted. This year, Finland’s economy will sink into recession on account of the coronavirus pandemic.”
The world changed on March 11 when the World Health Organization (WHO) declared COVID-19 a global pandemic, and federal, state and local governments began to make decisions to close schools and nonessential businesses.