Finland could hit recession early next year, the Finance Ministry said Tuesday, as it slashed forecasts for economic growth in 2012 to 0.4 percent from an earlier predicted 1.8 percent.
The ministry predicted that growth in 2011 will be 2.6 percent and after a year of low demand and falling investments next year it should pick up again in 2013 and reach 1.7 percent.
The ministry's economic review warned that Finland might hit a recession at year-end or early 2012 unless growth in its main trading partners _ Russia, Sweden and Germany _ markedly improves.
"Growth in 2012 will depend almost entirely on domestic demand since exports will remain subdued in 2012," the review said. "Dwindling international and domestic demand is also reflected in investment demand. Private investment is projected to contract by 1.5 percent in 2012."
The government said it expects unemployment, at a three-year low of 6.2 percent in November, to gradually grow and top 8 percent next year. Inflation was predicted to fall slightly, to about 2.7 percent, in 2012.
After a good first half in 2011, the financial crisis in the eurozone began to affect the economy of the small Nordic country _ one of six eurozone members with a triple-A debt rating.
"The sense of uncertainty that began to take hold late in the summer, especially in the eurozone, is once again quickly feeding through into the real economy," the review said. "Since the early autumn, economic statistics have indicated a broadly based slowdown in activity both in Finland and across Europe."
The report also noted that Finland's public finances had deteriorated rapidly after the previous global economic crisis.
"With growth remaining sluggish and the economy possibly heading for recession, the state of public finances will again present a serious challenge," the ministry warned.
Last week, the Bank of Finland also predicted that economic growth would fall to 0.4 percent in 2012 and could be even lower if the euro debt crisis worsens.
Finland, a member of the 17-nation eurozone, has been a keen supporter of the European Union but earlier this year said it would demand guarantees or collateral in any future bailout packages for ailing eurozone partners.