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Business Environment

Business Environment

Market conditions

Russia’s invasion of Ukraine has weakened Finland’s economic outlook. The Bank of Finland estimates that the economy will grow by 1.7 per cent in 2022 and only 0.5 per cent in 2023. The war has led to an increase in supply disruptions and higher raw material, food and energy prices. Growing uncertainty, weaker consumer confidence and rapid inflation reduce consumption and investments. Foreign trade with Russia has collapsed and the volume of exports is declining. In addition, the rise of market interest rates has tightened financing conditions. The war has a variety of economic impacts on Finland – and at this stage, all effects of the war on the Finnish economy are subject to significant uncertainty. (Source: Bank of Finland)

Urbanisation in Finland has maintained demand for both housing and business construction, especially in growth centres. The war (in Ukraine) weakened the outlook for construction, but the large number of start-ups in 2021 maintains the backlog of work this year. Problems with the availability of construction materials significantly increase the cost of construction. General uncertainty and rising costs hinder tender operations and contribute to the pushing back of projects, decreasing the number of start-ups in 2023. (Source: Confederation of Finnish Construction Industries RT)

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 to 39,000 units due to uncertainty and the rise of costs and interest rates. Business construction also returned to a growth track in 2021, driven by the construction of warehouses and industrial facilities. This year, growth in business construction is slowed down by uncertainty and unpredictable costs. (Source: Confederation of Finnish Construction Industries RT)

2022 got off to a strong start in the Finnish real estate market, with a wide variety of trading in different sectors. Russia’s war against Ukraine and rising inflation cloud the outlook for development and impact on both investments and rental demand. Investors have been primarily interested in targets with strong cash flows, such as housing, public services premises and logistics properties. Furthermore, interest in office properties has grown, while the appeal of commercial properties remains low. The share of real estate transactions accounted for by foreign investors has remained high, but is expected to start declining. (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 8-15 per cent this year. Fixed investments and imports are falling sharply. Following the invasion, the rouble exchange rate has plummeted, inflation has accelerated to a record level and purchasing power has weakened. (Source: Bank of Finland, Bofit)

Interim report 1-6/2022, 21 July 2022