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The Bank of Finland has forecast the country's economy is expected to fall into a mild recession in 2023, although it will grow by 1.9 per cent over the entire year of 2022.

The central bank said that the economy grew strongly throughout the first half of this year, as economic growth picked up globally in the early part of 2022 when Covid-19 restrictions were removed. However, growth stagnated again due to the ongoing Russia-Ukraine war, reports Xinhua news agency.

The bank forecast that the economy would slide into a mild recession, whereby gross domestic product (GDP) would shrink by 0.5 per cent in 2023.

A surge in the cost of living, and the energy crisis exacerbated by the conflict in Ukraine, have accelerated a looming recession, the bank said.

"High inflation and weakening purchasing power will cause private consumption to fall in the immediate years ahead," said Meri Obstbaum, head of forecasting at the Bank of Finland.

The bank attributed the impending recession mainly to weakening consumer purchasing power, and the eroding of consumer and business confidence in the economy due to high inflation.

In addition, companies will be cautious in their investment decisions due to the weak economic outlook, the rising cost of financing, and substantial economic uncertainty.

Nevertheless, inflation will slow to 5 per cent in 2023, and settle at about 2 per cent in 2024-2025.

"As inflation slows, household purchasing power will improve, and the uncertainty about the economy will subside. This will encourage consumer spending and strengthen the economy's conditions for growth," Obstbaum said.

The Bank of Finland, therefore, forecast that economic growth will rebound to 1.1 per cent in 2024, and to 1.5 per cent in 2025.

In the next few years, public spending in Finland will continue to exceed revenues.

The public debt-to-GDP ratio will rise considerably from 2024 onwards, reaching 75 per cent by the end of 2025.

A fiscal correction will require significant spending cuts and tax increases in future parliamentary terms, according to the bank.