Introduction to Finland’s Economy
The Finnish economy has been experiencing a slow recovery from recession. Despite this, there are signs of faster growth ahead, driven by a marked slowdown in inflation and falling interest rates, which have improved household purchasing power. However, economic uncertainty has caused households to channel their additional income into savings rather than consumption.
Economic Forecast
Finland’s gross domestic product (GDP) is projected to grow around 1.0 per cent this year, 1.4 per cent next year, and 1.7 per cent in 2027. The general government debt ratio will stabilize briefly but not permanently at the end of the parliamentary term. According to the forecast published by the Ministry of Finance, Finland’s economic recovery has been slow, but there are signs of faster growth ahead.
Factors Affecting Economic Growth
A marked slowdown in inflation and falling interest rates have improved household purchasing power. However, economic uncertainty has so far caused households to channel their additional income into savings rather than consumption. Investments are projected to grow faster, driven significantly by energy transition and defense projects in the 2025–2027 forecast period.
Global Economic Recovery
Global economic uncertainty has decreased slightly thanks to preliminary customs agreements. Data on the global economy from early in the year has also been somewhat more positive than expected. Nevertheless, uncertainty remains high. This uncertainty and significantly higher US tariffs are holding back growth in real incomes and investments. Finnish export growth is being significantly hindered by US trade policy and the appreciation of the euro but is being supported by the euro area recovery.
Purchasing Power and Household Consumption
Inflation has slowed substantially, and price rises will remain moderate. Falling prices of energy and owner-occupied housing have been the main factors bringing inflation down. With inflation slowing down and wages rising, real incomes have also returned to growth. However, the increase in average household real incomes has been slowed this year by weak employment, cuts in social benefits, and increases to consumption taxes.
Investments and Employment
Investments will see clear growth this year after two years of decline. The situation in construction remains weak, however. Housing construction in particular is recovering slowly. Despite the increase in the number of sales, the housing market has still not yet recovered to a normal level. Employment did not turn to growth during the early part of the year. However, growth in output is expected to improve the employment situation starting next year.
General Government Debt Ratio
Tax revenues will grow slowly this year due to the sluggish beginning of the year. Expenditure growth will be more moderate due to lower inflation and adjustment measures, though interest and defense expenditure will continue to grow sharply. The general government deficit will be 4.3 per cent of GDP this year. The weak economic cycle is hitting central government finances the hardest. The central government deficit is 4.2 per cent of GDP.
Conclusion
In conclusion, Finland’s economy is slowly recovering from recession, with weak employment and economic uncertainty keeping households cautious. While there are signs of faster growth ahead, the general government debt ratio will stabilize briefly but not permanently. It is essential for Finland to reach a consensus on goals for managing public finances and putting general government indebtedness on a sustainable declining trend. This would be a shared national achievement that future generations would thank them for. With the implementation of adjustment measures and accelerating economic growth, Finland can improve its general government finances and reduce its deficit. However, it will not be possible to bring indebtedness under control without bringing the funding of central and local government closer to balance.
