Finnish economy returning slowly to growth

The Bank of Finland has today published its forecast for the Finnish economy for the period 2024–2027. The country’s economy will show a contraction of 0.5% for 2024. In 2025, the economy will grow by 0.8%, and in 2026 by a higher rate, 1.8%. In 2027, at the end of the forecast period, growth will soften to 1.3%, which is close to the long-term growth potential.

“Consumer spending will recover slowly to begin with, as consumers’ confidence in the economy is weak, unemployment still rising and fiscal policy growing tighter. On the other hand, interest rates are expected to come down further, which will support consumption and investment,” says the Bank of Finland’s Head of Forecasting, Juuso Vanhala.

As the future outlook improves, businesses will start to invest in construction, machinery and equipment. Non-residential investment will already be up in 2025, but in residential construction a clear improvement will take longer to come about.

“As far as exports are concerned, the past two years have been weak. Exports will gradually pick up from 2025 onwards, when the economy in Finland’s export markets gathers pace and the worldwide reduction in interest rates spurs demand for Finnish exports of investment goods. But subdued growth in the euro area economy will curb the improvement in Finland’s exports,” says Vanhala. The anticipated tightening of trade policy by the United States also threatens to dampen the growth in Finnish exports.

Inflation will be moderate

Inflation in Finland has fallen considerably during 2024. In 2025, increases in taxation will affect the inflation rate. In 2026–2027, the upturn in the economy will gather pace and household purchasing power will rise, which means a modest inflation rate will be sustained by domestic consumer demand. Inflation in Finland will remain below 2% for the entire forecast period.

Government debt will continue to rise

Finland’s general government finances will remain deeply in deficit, despite the growth pick-up in the economy and the impact of the Government’s substantial fiscal adjustment measures. Finland’s fiscal deficit for 2024 will rise to 4% of gross domestic product. The deficit will not fall below 3% until 2027. The public debt ratio will rise to 87% in 2027. The sustainability gap is anticipated to be about 2%. This means that public debt accumulation is still on an unsustainable path.

• Presentation 17 December 2024, Head of Forecasting, Juuso Vanhala (in Finnish)
• Bank of Finland Bulletin publication website