Finnish Central Bank Now Forecasts Worst Recession in a Century

(Bloomberg) --

The outlook for Finland’s economy has dramatically worsened due to the coronavirus outbreak, with the country’s central bank now forecasting contraction levels not seen in more than a century.

Gross domestic product is set to shrink between 5% and 13% this year, Bank of Finland Governor Olli Rehn said Tuesday, according to slides published on the central bank’s website. Only three weeks ago, the bank was looking at a potential contraction rate of not more than 4%.

“A fairly quick recovery remains possible, if containment measures don’t need to be upheld for a long time and if a wave of bankruptcies and mass unemployment are averted,” Rehn said.

Much of Finland’s export-led economy has been at a near standstill since mid-March, with borders closed, most schools and universities shut and public gatherings limited to 10 people. Bars and restaurants have also been closed. Some 13,000 people have already lost their jobs and more than 375,000 people are in the process of being laid off temporarily without a paycheck.

In the more optimistic scenario set out by the central bank, the measures taken by the government to contain the outbreak are to be relaxed after May 15. This would lead to a quick recovery and an expansion rate of 6.9% in 2021. Realizing this scenario requires significantly boosting health-care capacity to test, track and isolate the sick, the central bank said.

In the worst-case scenario, existing containment measures would continue until the end of September. That would lead to a projected shortfall in public finances of as much as 10.3% in 2020.

Finland’s economy contracted by 8% during the financial crisis and by a record 16.1% in 1917, according to historical data compiled by the Bank of Finland.

©2020 Bloomberg L.P.