Alternative scenario : Household consumption could be hard hit in the energy crisis

Abstract

The alternative scenario in the Bank of Finland’s forecast for the Finnish economy examines risks surrounding the Bank’s December 2022 baseline forecast which, should they materialise, could lead economic growth to be weaker than projected. The scenario estimates the possible impacts on the Finnish economy if Russia’s war in Ukraine drags on and if the availability of energy weakens further and economic uncertainty increases. Compared to the baseline forecast, a further deepening of the crisis would prolong the economic recession in Finland and maintain price pressures in 2023 at a higher level than projected. With higher inflation and a higher increase in interest rates than in the baseline forecast, private consumption would be notably weakened. The high level of household indebtedness may deepen the recession, particularly if the financial margin of indebted households is small.