Regional development prospects increasingly reflect uncertainty about the future
Russia’s war of aggression in Ukraine creates uncertainty for the international economy and has broad multiplier effects. Rising prices weaken consumers’ purchasing power, increase production costs and reduce willingness to invest. On the other hand, projects related to circular economy, digitalisation and clean energy solutions are progressing quickly in the regions.
The estimates are based on a review of the current situation and short-term prospects in the regions and subregions, which was prepared by the ELY Centres together with other key regional developers and published on 24 October 2022. The estimates for the review were made in September. Regional development prospects are compiled into a publication twice a year, in the spring and in the autumn.
“First, the coronavirus pandemic and then Russia’s attack on Ukraine reduced predictability. Rising prices will be a major challenge for both companies and households. Many regions are uncertain about future economic developments, but fortunately we are well-prepared in different sectors of society and the cogs of the economy are turning. The current situation clearly requires creative solutions from all of us. However, I want to create trust in the future to get us through this too,” says Minister of Economic Affairs Mika Lintilä.
War’s effects less serious than feared but higher energy prices cause concern
The regions estimate that Russia’s war of aggression in Ukraine has so far mainly caused indirect impacts, and that there have been fewer direct impacts on companies than feared. The regions of eastern Finland have felt the effects of the war most severely as they have suffered from the collapse of international tourism and exports to Russia, as well as from the falling global exports through the Saimaa Canal. The biggest current threat to regional economic development is the substantial rise in energy prices, which affects the profitability and operating conditions of both industry and the service sector.
Profitability problems in agriculture have exacerbated due to the rising prices of fertilisers and energy, although some of these increased costs have been transferred to product prices.
The increase in construction costs has caused postponements of planned projects and revisions to the cost estimates. Although construction is expected to slow down, many large projects are underway or about to begin throughout the country.
According to the review, the technology industry has fared well in recent years and the order books remain quite strong, even though there are signs of declining demand.
War boosts investments in renewable energy
On the other hand, the ongoing crisis is also considered a factor that can speed up the development of circular economy, digitalisation and energy self-sufficiency, open up new markets and help prepare for various risks. Russia’s attack on Ukraine has accelerated the shift in energy production towards renewable energy sources as many countries strive to end imports of Russian energy quickly.
Significant wind power and solar power projects are underway or planned in different parts of the country. Great expectations are placed on pending green hydrogen projects. Farms are increasingly investing in biogas and solar energy. The demand for and price of energy wood has risen as imports from Russia have ceased and peat production is being phased out.
Employment trend is positive but more skilled workers needed
The poor availability of labour has been a problem for quite a while and the situation has deteriorated further in recent times. The shortage of labour in the health and social services sector is prevalent throughout the country, and the growth of the ICT sector is hampered by the shortage of skilled workers. The fact that many people changed occupations during the coronavirus pandemic has caused a shortage of labour not only in the health and social services sector but also in the tourism and restaurant sectors. The review states that in ensuring the availability of labour, the focus is increasingly shifting towards work-based immigration.
Sonja Hällfors, Special Adviser to the Minister of Economic Affairs, tel. +358 29 504 7380
Jouko Nieminen, Strategy Director, Development and Administration Centre for the ELY Centres and TE Offices, tel. +358 29 502 2769
Joona Repo, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 29 504 7347