The permanent damage of the crisis will be visible in the fact that not all sectors will reach pre-crisis levels in the medium run and there will be permanent job losses. We estimate Finland’s unemployment rate could rise to above 8% in 2020 and remain at a high level in the absence of active employment policies and stimulus for key sectors. Finnish companies are quite highly indebted even if a bit less than some of their European peers such as Sweden, France, Belgium or Norway. Hence the fiscal relief measures implemented by the government (partial unemployment schemes, state guarantees for loans to avoid a liquidity crisis, as well as tax payments rescheduling) for a total of 2% in direct financing and 18% in state guarantees have been key to give some breathing space for companies and avoid a massive wave of insolvencies during the crisis. Similar, to other Eurozone countries, Finland was running into a fiscal deficit before the Covid-19 crisis but it had a more moderate level of public debt. We expect the fiscal deficit to rise above -9% of GDP in 2020 (after -1% in 2019) and public debt to rise to above 72% of GDP.

However, at the exit of the crisis, while activity will remain below pre-crisis levels as long as there is no vaccine and social distancing measures are required, we fear that several companies will enter into financial difficulties in the absence of prolonged and targeted fiscal relief. Hence, we expect business insolvencies to rise by +25% by mid-2021.