Finland’s economic outlook for 2024 presents a mix of grim forecasts and budding signs of recovery, signaling both challenges and opportunities for the Nordic nation. According to the Helsinki-based ETLA Economic Research, Finland is expected to struggle this year, with gross domestic product (GDP) slated to contract by 0.5%. ETLA’s head of forecasting Päivi Puonti has noted, “Finland’s economy is likely to contract by 0.5% for the full year 2024.” This figure has prompted concerns about Finland being the worst performer among eurozone countries.
The Finnish economy has faced significant challenges since late 2022, and each quarterly report leading up to the second quarter of 2024 has shown negative growth. The downturn is exacerbated by high-interest rates and weak domestic demand. Notably, S&P Global Ratings indicated recent GDP forecasts have been revised down to around 0.4% contraction, highlighting issues such as low consumer spending and the impact of the European Central Bank's (ECB) monetary policy on variable-rate loans, which constitute 97% of Finland's housing loans.
While the contraction trend is disheartening, there is hope for long-term recovery. S&P predicts inflation to remain low, averaging around 1%, aided by decreasing energy prices and subdued wage growth, which have kept inflation rates below the euro area average. “The weakness in domestic demand has kept inflation well below the euro area average,” according to S&P, which points to low consumer spending as one of the primary drivers for this trend.
To counteract these economic setbacks, the Finnish government has laid out extensive budgetary measures aiming to address persistent deficits, which have been noted every year since 2009. The Ministry of Finance has projected continued budget deficits for coming years but aims to consolidate finances by implementing around €9 billion of austerity measures, which amount to approximately 3.3% of GDP levels for 2024. Among these measures, €6 billion will comprise spending cuts, and €2 billion will stem from labour market reforms.
While the Finnish economy grapples with recovery, the unemployment rate is also projected to rise to 8.3% by the end of 2024, up from 7.2% in 2023. The number of unemployed jobseekers hit 292,400 at the end of November 2024, which is up by 28,100 from the previous year, illustrating the strain on the labour market.
Nevertheless, signs of optimism are blooming. S&P predicts prospects for 2025 look brighter, with forecasts indicating GDP growth may rise to 1.4%. With declining interest rates anticipated to stimulate consumer and business confidence, private consumption could lead the way back to growth. “When monetary policy eases, there’s potential for growth recovery beginning by mid-2025,” S&P's analysis suggests.
Finland's startup ecosystem has also emerged as a beacon of promise during this tumultuous economic period. According to Aziz Rahman from Business Finland, the nation’s startups raised €592 million as of November 2024, surpassing last year's figures. Finland's entrepreneurial spirit is bolstered by strong government support, with Business Finland covering around 50% of research and development expenses for startups. “It's a great environment to test ideas before scaling them globally,” Rahman notes, emphasizing Finland’s strategic commitment to nurturing its innovative sectors.
Finland also boasts three unicorn startups—Oura, Aiven, and Relex Solutions—which exemplify the successful ventures springing from its fertile ground. The collaborative nature of the country’s tech industry and its highly educated talent pool are cited as key factors driving innovation.
Despite the optimistic perspectives coming from the startup scene, there are broader concerns about Finland’s long-term economic structure. The Bank of Finland has cautioned about the necessity for sustainable productivity growth, particularly as the country faces demographic challenges linked to its aging population. “When we compare ourselves with Germany, which is also facing these structural dilemmas, the questions for Finland remain: how do we attract skilled workers and improve productivity?” Puonti remarked.
Moving forward, the idea of establishing more dynamic structural reforms to attract and retain talent and develop new sectors could dictate the success of Finland's economic comeback. Reports also suggest embracing digitalization and innovations would be pivotal for overcoming the varied challenges faced by the economy.
While Finland may currently appear caught between recession and ambitious growth targets, the government’s strategic interventions and the resilience of its startup ecosystem provide hope. With smart policies and investment, the nation may yet navigate through these turbulent times and emerge with renewed vigor.
