Cyclical|According to Hypo’s economic forecast, Finland’s economy will contract even this year, because interest rates are falling slowly.
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Inflation will temporarily turn negative in Finland this year.
Deflation can negatively affect the housing and car markets.
Mortgage interest rates keep inflation positive throughout the summer.
Hypo’s forecast for Finland’s economic growth is pessimistic.
Finland the economy is threatened by a momentary drop in consumer prices, which is not reflected in official statistics, estimates Suomen Hypoteekkiyhdistys (Hypo).
In its economic review published on Friday, Hypo estimates that inflation, i.e. the annual change in consumer prices, will temporarily turn negative “right now”, i.e. this year, because economic growth stagnates and the interest rate does not fall quickly.
According to the most recent data from Statistics Finland, inflation has fallen below two percent in Finland, and inflation according to the harmonized consumer price index, comparable to the euro area, has already reached 0.5 percent.
“If we remove the effect of interest rates from the national index, inflation has dropped to no less than 0.1 percent. The statistics thus hide the impending hidden deflation, which indicates the stagnation of economic growth”, writes Hypo’s chief economist Juho Keskinen in the review.
Deflation is considered harmful in terms of economic growth, because when prices fall, consumers may postpone their purchases of goods and services into the distant future. In this case, especially the market for housing, cars and other consumer durables may freeze.
Deflation is quite a rare phenomenon, but it occurs during economic downturns. The last time inflation was negative in Finland was during the corona spring in 2020 and before that in 2015, when the price of oil fell sharply, says Hypo.
According to Hypo’s estimate, mortgage interest rates keep inflation positive while the average interest rate on the loan portfolio is higher than a year ago. Hypo estimates that this positive effect of interest rates on inflation will dissipate during the summer.
“If economic growth does not start faster than expected, and energy prices remain high, we will probably read headlines about deflation for a while this year,” Keskinen estimates.
On the other hand, the increase in value added tax that will come into force at the beginning of September will increase inflation in the rest of the year.
Hypon according to the forecast, the Finnish economy will contract again this year, as the increased interest rate outlook postpones growth.
The bank lowers its forecast for Finland’s economic growth for this year. The bank now estimates that Finland’s gross national product will fall by 1.0 percent this year. In January, it still predicted zero growth. Last year, the economy shrank by 1.2 percent.
Hypo’s updated economic growth forecast is among the most pessimistic of the recently published forecasts. Like Hypo, Nordea predicts that the economy will shrink by 1% this year, while other economic forecasters predict a decrease of less than 1%, according to the data collected by Finanssiala ry.
According to Hypo, the zero year in construction can be seen in declining investments and a declining labor market. Consumers are still adjusting their spending on the biggest purchases this year, because the interest rate is falling at a cautious pace.
According to Hypo’s estimate, economic growth will start during this year, but the economy will not start to grow until the middle of next year. According to the forecast, economic growth next year will be 2.0 percent. The figure is the same as what Hypo predicted at the beginning of the year.
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