Recovery from the COVID-19 hit to the economy began in the second half of 2020, led by consumption and exports. GDP is estimated to have fallen by 4% in 2020 and is projected to expand by around 1½ per cent in 2021 and 1¾ per cent in 2022. Investment will be slow to recover owing to surplus capacity and uncertainty about the economic outlook. The unemployment rate will peak in 2021, but will remain high by the end of 2022. The main risk to the outlook is that virus infection rates rise again in Finland and its trading partners before an effective vaccination is implemented, delaying the recovery.
If the recovery is delayed, fiscal stimulus should be extended and temporary income support measures prolonged. To encourage employers to limit use of the temporary layoff scheme to viable jobs, they should contribute to the benefit costs of their furloughed employees. Once the recovery is firmly established and the pandemic has subsided, fiscal prudence will be required to stabilise the debt-to-GDP ratio. Reforms to close early retirement pathways would make a significant contribution to fiscal consolidation.