The purchasing power of households is estimated to weaken rapidly in the coming winter.
Danish The Bank has darkened its financial forecast for next year. The bank estimates that Finland is currently drifting into recession.
Danske Bank predicts that the gross domestic product will shrink by 0.2 percent next year, while a 1.6 percent increase was previously predicted. The exceptional decrease in the forecast is justified by the prolongation of inflation and the weakening of the international economic outlook.
However, the bank updated the current year’s gross domestic product growth forecast to 2.0 percent, while it was previously 1.5 percent. According to the bank, the first year of the national economy went better than feared. In the summer and autumn, however, the outlook has darkened quickly.
In the economic forecast, it is estimated that the purchasing power of households will weaken rapidly in the coming winter, and this will also affect the big picture of the economy. The reasons for this are especially the effect of Russia’s energy squeeze and rising interest rates on Western economies.
“Inflation is now eating away at consumers’ purchasing power at a historically high rate. Also, the rapid rise in interest rates and the weakening of employment prospects mean a cold winter for many Finnish homes. You can talk about the triple blow of inflation, interest rates and unemployment, which will put the purchasing power of many households in a difficult position next winter,” says Danske Bank’s chief economist Pasi Kuoppamäki in the bulletin.
“We expect that the development of core inflation, which is cleaned of energy and food prices and is more permanent in nature, will exceed the European Central Bank’s ECB target of two percent next year as well. It increases the pressure to tighten monetary policy.”
Danish The Bank says that in addition to Finland, the outlook has weakened elsewhere in the euro area as well. Its economy is burdened by the increased prices of natural gas and electricity, the threat of energy shortages and interest rate hikes by the ECB. Germany’s situation in particular is described as difficult after Russia’s gas imports fell rapidly during the summer.
“Demand pent up from the pandemic period and household savings supported growth in the spring, but inflation is now biting into consumers’ purchasing power at record speed. We expect the euro area economy to sink into recession during the rest of the year and growth to remain weak towards the beginning of 2023,” Danske Bank analyst Antti Ilvonen says in the release.
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