Ukraine crisis to hit Finland growth, says OP

OP-Pohjola, the Finnish financial group, has warned that local GDP growth could be cut by 0.7% this year in the wake of the Ukraine crisis and its effects on levels of trade between Russia and Finland.

Finland otherwise is projected to show better economic growth than the eurozone average this year, before experiencing weaker than expected growth next year.

Currently, the Finnish economy is expected to grow by 1% through 2014, and 2% in 2015 – although the latter figure is down from a previous forecast of 2.5%.

Sectors that will be hit include exports, but also a decline in the number of tourists from Russia.

Reijo Heiskanen, chief economist at OP-Pohjola, said: “The economic outlook in Russia was already weak before the Ukraine crisis, but the crisis is expected to slow Russia’s economic growth further. The growth rate should remain 1% this year and 2% in 2015. In addition, the rouble is expected to remain markedly weaker.”

Slower exports will dampen consumption and capital spending alike in Finland, OP-Pohjola warns, leading to rising unemployment.

“Economic slowdown in Russia and its repercussions are anticipated to slow Finnish GDP growth by 0.7 percentage points this year. However, the negative effect should next year be only a tenth of a few percentage points.”

Finland’s government is looking to finalise its budget, and the impact on the economy of the Ukraine crisis will come on top of what are expected to be policy decisions that would slow the economy in any case, such as a planned increase in indirect taxes.

“Fiscal adjustments and the sale of government holdings will reduce the government and fiscal deficits in 2015. The government debt-to-GDP ratio is expected to remain below the critical level of 60% but the ratio will not, however, stop rising until 2016,” OP-Pohjola notes.


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