Finland: A mild pandemic limits the damage

Despite the relatively mild pandemic compared to other eurozone economies, measures have been firmed up to battle the second wave yet again.

On 1 March, the government declared a state of emergency, and all bars and restaurants were closed from 9 March until 28 March. Upper secondary schools have been instructed to homeschool in areas where the virus is spreading fast. These measures are milder than the restrictions in neighbouring countries like Sweden and other larger eurozone economies but will surely weigh on the GDP outlook for the first quarter of the year.

So far though, the impact on the economy has been small compared to other countries. Fourth-quarter GDP for 2020 was just -1.7% lower than in 4Q19. For context, in the US, this was -2.4%, Sweden -2.1%, Germany -3.6% and the UK -7.8%. This sets Finland up well for recovery with relatively limited long-term damage.

We expect Finland to recover to pre-pandemic levels of economic activity towards the end of 2021, which is much faster than the eurozone average

With all-time low levels of bankruptcies, thanks to government support and unemployment that rose by just 1.5%, most of the uncertainty is around the withdrawal of government support. Government support has been quite significant, much larger than what has been seen in Sweden and Denmark, but stimulus effects will fade rather quickly in 2021.

Cyclically adjusted net lending will decrease from -5.3 to -3.5% this year, which leaves the risk of increased economic damage when support is taken away too quickly.

In short, in comparison to many other countries, Finland seems much better geared up to limit the impact of the pandemic.