The Finnish economy rebounded rapidly from the recession caused by the worst phase of the coronavirus pandemic and it is estimated that Finland’s economy grew by 3.3 per cent in 2021. Russia’s invasion of Ukraine at the end of February ushered in significant economic uncertainty and weakened the growth prospects of the Finnish economy. The war has a variety of economic impacts on Finland – their extent will depend on the duration and scope of the war. The crisis accelerates inflation as the prices of energy and raw materials rise. Growing uncertainty, weaker consumer confidence and rising prices reduce consumption and investments. Growth in exports will tail off due to the termination of trade with Russia. Sanctions and counter-sanctions will worsen the bottlenecks in global production chains that were caused by the coronavirus pandemic. (Source: Bank of Finland & Ministry of Finance)
Urbanisation in Finland has maintained demand for both housing and business construction, especially in growth centres. Construction swung to growth in 2021, driven by the Finnish economy. The large number of start-ups in 2021 will maintain the backlog of work this year. Before the war began, it was expected that construction growth would accelerate to two per cent this year. The uncertainty ushered in by the war, its diverse economic impacts, the tough price trend in construction, and problems with the availability of materials put the brakes on construction.
Housing construction set a record-high pace in 2021, and it is estimated that 48,000 residential units were started up. It is forecast that the pace of housing construction will slacken this year due to uncertainty and the potential rise of interest rates. Business construction also returned to a growth track in 2021, driven by the construction of warehouses and industrial facilities. It has been forecast that growth will continue this year on the back of the construction of warehouses and industrial facilities as well as service-sector investments. However, there is a significant risk that development will fall short of the forecast. (Source: Confederation of Finnish Construction Industries RT & RAKSU group).
The volume of real estate transactions remained high in 2021. The Finnish property market got off to a strong start in 2022, but Russia’s war against Ukraine creates uncertainty and casts a shadow on its outlook. Investors have been primarily interested in targets with strong cash flows, such as housing and logistics properties. Furthermore, interest in office properties has grown, while the appeal of commercial properties remains low. (Source: KTI & Newsec)
Russia’s invasion of Ukraine has pushed the Russian economy into a recession. Due to the prevailing uncertainty and the extensive economic and trade sanctions imposed on Russia by other countries, and the counter-sanctions by Russia, Bofit estimates that Russia’s GDP will contract by 10 per cent this year. Fixed investments and imports are falling sharply. Following the invasion, the rouble exchange rate has plummeted and inflation has accelerated to a record level. (Source: Bank of Finland, Bofit)
Interim report 1-3/2022, 28 April 2022