-
Russia-Ukraine War has a big negative impact on Finnish economy, which is the most exposed Nordic country measured by value of foreign trade.
-
Finnish companies have already begun to adapt to a situation where Russia as a market is insignificant. Material sourcing flows elsewhere and some production will be transferred from Russia to Finland.
-
We see downside risks to our 2022 GDP forecast of 2.8% of 0.5-1.0pp, but uncertainty is large. Exports are hit and higher inflation slows down recovery in consumption.
-
Finland shares a long border with Russia. Geopolitical risk is apparent, but we see only a small risk of military escalation on Finnish border. NATO membership has become a more popular option in surveys.
The Russia-Ukraine War has a big impact on the Finnish economy, which is the most exposed Nordic country measured by value of foreign trade. Russia was Finland's fifth largest export market in terms of the value of goods exports in 2021. Russia's role in imports has been even greater, especially due to the import of oil and natural gas. Russia has played an even bigger role in the past, but its importance shrank significantly after the occupation of Crimea in 2014. The economic connections between the countries are significant in other ways as well, as many Finnish companies operate in Russia and Russian tourism has been a big source of revenue for the Finnish travel industry and retail trade. However, these connections have also declined in recent years, with many companies closing down in Russia. Ukraine's direct importance to the Finnish economy is small, but the war has indirect effects trough global markets in raw materials such as grains. Inflation will be higher for longer also in Finland.
Finnish companies have already started replacing Russian material with other sources. Urals crude oil is being replaced with North Sea Brent. Russian timber is being replaced by domestic sources. In both examples companies continue to operate, but with higher costs and possibly lower profit margin. On the other hand, prices for sawn materials may rise without Russian competition. The degree of adaptation is more challenging for companies that have significant production or other operations in Russia or Ukraine. Several factories in Russia have been closed already, also without a pressure from sanctions. In some cases, these closures are permanent and may imply additional investments in Finland or somewhere else in the West. Accelerated implementation of renewable energy and other energy related projects, attention to defense spending as well as investment into civil crisis preparedness could boost investment. On the other hand, uncertainty and political considerations could put some commercial investment plans on hold. This applies for example to the Hanhikivi nuclear power plant, which is based on a Russian reactor and is one third owned by a Finnish subsidiary of Russia’s Rosatom.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD holds steady near 0.6250 ahead of RBA Minutes
The AUD/USD pair trades on a flat note around 0.6250 during the early Asian session on Monday. Traders brace for the Reserve Bank of Australia Minutes released on Monday for some insight into the interest rate outlook.
USD/JPY consolidates around 156.50 area; bullish bias remains
USD/JPY holds steady around the mid-156.00s at the start of a new week and for now, seems to have stalled a modest pullback from the 158.00 neighborhood, or over a five-month top touched on Friday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven JPY.
Gold: Is another record-setting year in the books in 2025?
Gold benefited from escalating geopolitical tensions and the global shift toward a looser monetary policy environment throughout 2024, setting a new all-time high at $2,790 and rising around 25% for the year.
Week ahead: No festive cheer for the markets after hawkish Fed
US and Japanese data in focus as markets wind down for Christmas. Gold and stocks bruised by Fed, but can the US dollar extend its gains? Risk of volatility amid thin trading and Treasury auctions.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.