Danske Bank announced last week that household purchasing power is being threatened by three factors: inflation, interest rates, and unemployment.

Danske Bank has revised its economic growth forecast for Finland for 2023.

The Nordic financial services provider revealed last week that it had cut its gross domestic product growth forecast for 2022 from 1.6% to -0.2% due to a prolonged inflationary environment and economic uncertainty worldwide.

Danske Bank chief economist Pasi Kuoppamaki (Pasi Kuoppamäki) said that the Finnish economy is currently heading towards a downturn. However, the forecast for this year was raised from 1.5% to 2.0% because the start of the year was better than expected.

Since last summer, forecasts have deteriorated significantly. As Russia continues to use natural gas supplies as a weapon and rising interest rates affect the economies of Western countries, household purchasing power will fall sharply next winter and will also impact the wider economic situation.

“Inflation is currently eroding consumer purchasing power at an unprecedented pace. The rapid rise in interest rates and worsening employment prospects also promise a cold winter in many Finnish homes,” notes Pasi Kuoppamaki. “One could talk about a triple blow of inflation, interest rates, and unemployment that will test the purchasing power of many households next winter.” “We expect more persistent core inflation, which excludes the impact of food and energy prices, to remain above the European Central Bank's (ECB) two percent target this year as well. This creates pressure to tighten fiscal policy,” emphasises Danske Bank economist P. Kuoppamaki.

Another factor creating such pressure is tax relief and direct subsidies, which governments have announced in an attempt to offset the impact of inflation on businesses and consumers.

Danske Bank believed that the outlook had also worsened for the entire eurozone. It indicated that these sectors are being hindered by rising gas and electricity prices, the threat of energy shortages, and the interest rate hikes implemented by the ECB.

“Demand and household savings that had built up as a reserve during the pandemic boosted growth in the spring, but inflation is currently stripping away some consumer purchasing power at a record rate,” commented Danske Bank analyst Antti Ilvonen. “We expect the eurozone economy to slide into recession by the end of this year, and for growth to remain low until the beginning of 2023.”