Current macroeconomic forecasts are very uncertain and may change significantly during the spring and summer as the scale and economic impacts of the coronavirus pandemic become clearer.
In April 2020, the Bank of Finland made two alternative calculations for Finland’s GDP, estimating that it would contract by either 5 or 13 per cent in 2020. Particularly, the decline is due to the various potential impacts of the coronavirus pandemic and weakened economic climate. The depth of the recession is currently extremely difficult to assess, as the future development of the coronavirus pandemic is still unknown, as are the measures that will be used to fight against the pandemic and the kind of economic policies that will be introduced to alleviate the impacts of the recession. The longer the restrictions must remain in place, the worse the recession will be. However, a relatively swift recovery is still possible. (Bank of Finland, Scenarios for trends in the Finnish economy over the coming years, 7 April 2020.)
Construction will continue to decline this year. The coronavirus pandemic might hinder the availability of labour and goods deliveries, which can make it more difficult to start up projects as planned. In addition, it might slow down progress on sites under construction. The pandemic is expected to impact on construction volume due to many different factors. However, it is as yet difficult to make more detailed estimates of its effects on the construction of housing and business premises.
Urbanisation and population shift are still the general drivers of construction and will maintain the need for both housing and business construction in growth centres, which are SRV’s strategic focal points. According to VTT’s forecast, urbanisation will continue, as Finland’s urbanisation ratio is clearly lagging behind other industrialised nations, such as Sweden. (Source: Helsinki Region Trends 1/2019 & VTT).
Construction of new housing has been at a record high in recent years, especially in the Greater Helsinki Area and other large growth centres such as Tampere and Turku. However, housing construction is expected to become muted this year. Housing start-ups in Finland began to decline last year and are estimated to decrease further this year from about 38,000 to around 32,000 units. (Business cycle review by the Confederation of Finnish Construction Industries RT, 2/2019.) However, the general uncertainty and difficulties in advance marketing arising from the coronavirus pandemic are slowing down trade and might cause housing production projects to be significantly postponed.
In the case of business construction, the construction of healthcare buildings and schools remains brisk due to ongoing projects. That said, the coronavirus pandemic will have a significant impact on the near-term development of business construction as a whole. However, price pressures on construction have decreased due to the trend in the general business climate. According to Statistics Finland, construction costs in February had risen by 0.2 per cent year-on-year. (Source: Business cycle review by the Confederation of Finnish Construction Industries RT, 2/2019, Statistics Finland, Building Cost Index.)
In the first months of the year, both Finnish and foreign investors maintained a good level of interest in projects in Finnish growth centres. Apartments have become an increasingly attractive class of property investment in recent years, and interest has remained high. However, many investors are currently taking a wait-and-see approach due to the prevailing situation.
The outlook for the Russian economy has deteriorated significantly as a result of measures taken to curb the collapse in oil prices and the interest rate of corona pandemic, and forecasts have been clearly lowered. The International Monetary Fund (IMF) forecasts that the country’s GDP will shrink by as much as 5.5% this year and grow by only 3.5% next year. The IMF base scenario assumes that most restrictive measures will occur on the second quarter of the year that recovery from the pandemic will begin in the second half of 2020. In Russia’s case, also assumptions about the development of oil price after the collapse at the beginning of the year have a huge impact on the growth outlook. (Source: The weekly review of Bank of Finland Institute for Economies in Transition (BOFIT) 24 April 2020).
Interim Report 1-3/2020, 29 April 2020