People work at a site to improve urban infrastructure in Helsinki, Finland, May 3, 2017. REUTERS/Ints Kalnins/File Photo Acquire License Rights
HELSINKI, Sept 15 (Reuters) – Finland’s economic downturn will last longer than expected due to weaker export demand and a rapid slowdown in construction activity amid high interest rates, the Bank of Finland said on Friday.
The Finnish economy is in a mild recession and will contract by 0.2% this year, the bank said, updating its forecasts that predict a return to growth of just 0.2% in 2024, a decline from the previous estimate of 0.9%.
Hundreds of construction companies have already gone bankrupt in Finland this year, and the coming months don’t look much brighter. Real estate data shows new home sales fell more than 60% in August compared to a year ago.
“This year housing construction will fall below the level it reached during the financial crisis (2007-2009),” said Jouni Vihmo, chief economist at the Finnish Construction Industry Association.
Construction accounts for about 15% of Finland’s gross domestic product and employs nearly 7% of the country’s workforce, making it important to the overall economy, Bank of Finland Deputy Governor Marja Nykanen said.
While the construction slowdown and rising unemployment are damaging to the economy, Nykanen said she sees no systemic risk to the financial system from the construction sector for now. Nordic banks are profitable and have buffers that were accumulated but not needed during the COVID-19 pandemic, she added.
“Swedish banks are exposed to real estate and housing finance, and if we have banks operating across the Nordic borders, contagion effects are possible,” Nykanen told Reuters, adding that the market turmoil in Sweden is being closely monitored by the Finnish central bank would.
The Finnish Financial Supervisory Authority warned on Wednesday that risks in the real estate market are increasing and weakening the financial sector’s operating environment.
“Declining property prices, subdued trading activity and market uncertainty are increasing the credit, investment and liquidity risks of the financial sector,” it said in a statement.
Reporting by Anne Kauranen, editing by Toby Chopra and David Goodman
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