(Bloomberg) -- Finland’s economy will probably shrink more than previously projected as a recession that began last year extends into 2024, the Nordic country’s central bank said.

The Bank of Finland now expects gross domestic product to decline 0.5% in 2024, extending last year’s 1% drop, according to its latest forecasts published Friday. In December, it forecast the economy to contract 0.2% this year. 

The gloomier near-term outlook highlights the difficulties faced by the northernmost euro-area economy — one among a handful in Europe set to endure a recession for two years or longer. Compounding the fallout on consumption from higher inflation and credit costs, demand from its key export partners — like Germany and Sweden — has also weakened.

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A rebound in private consumption will prompt a recovery in 2025 as output will likely begin to bounce back toward the end of this year. The up tick will happen “a little faster” than seen three months ago, the central bank said. The economy will probably grow 1.7% in 2025, followed by 1.5% in 2026, it added. 

“The recession has already reached its lowest point, and we expect growth to be rekindled this year as household purchasing power strengthens and we start to see a return of general confidence in the economy,” said Meri Obstbaum, head of forecasting at the Bank of Finland. 

Still, geopolitical tensions and persistent inflation in the euro area could undermine that scenario and extend the recession, while risks in the housing market may cloud the outlook further, it said. Further political strikes, which have already prompted businesses to warn of reduced earnings in the first quarter, could also fuel uncertainty.

The pro-business government of Prime Minister Petteri Orpo has faced a backlash from the unions in recent months over proposed cuts to benefits and a plan to restrict political strikes. The government says the plans are intended to create 100,000 jobs and fix deteriorating public finances as well as to improve Finland’s competitiveness.

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