The Finnish economy appears poised to shake off its recent downturn, but full recovery is still quite some time away, according to the latest forecasts from the Bank of Finland. The central bank has lowered its growth expectations for the national economy, now predicting a rise of only 0.8% for 2025, down from previous estimates of 1.1%. Subsequent years show projected growth at 1.8% for 2026 and 1.3% for 2027.
Juuso Vanhala, the acting head of forecasting at the Bank of Finland, explained during a press conference on December 17, 2023, "Private consumption is initially recovering slowly as consumer confidence in the economy is low, unemployment continues to increase and fiscal policy becomes stricter." This gloomy outlook on consumption is compounded by high unemployment rates, expected to climb to 8.7% by 2025.
Interestingly, Vanhala noted positive trends on the horizon, claiming, "On the other hand, interest rates are expected to continue declining, which will support consumption and investments." This suggests a potential for revitalization if interest rates fall as predicted.
Finland's business investments, particularly those aimed at facilities, machinery, and equipment, are expected to increase once the economy stabilizes; yet, the construction sector is still not anticipated to see improvement soon. The nation's export potential is recovering slowly after two lean years, with signs indicating exports may pick up gradually beginning next year as global economic conditions improve.
Olli Rehn, governor of the Bank of Finland, reflected on the broader eurozone economic environment, asserting, "Economic growth in the eurozone is strengthening gradually as the rise in real household income boosts purchasing power." Despite this optimism, the eurozone’s muted growth affects Finnish exports' potential, as the region is Finland’s primary export market.
Financial markets are keeping close watch on the European Central Bank (ECB) as well, which has cut interest rates multiple times this year, most recently to 3% on December 12, 2023. With decreased rates expected to continue, consumers and businesses alike are anticipated to benefit from lower borrowing costs.
A looming issue for the Finnish economy is the potential impact of tariffs under the recently elected U.S. administration. If President-elect Donald Trump follows through on plans for substantial tariffs—60% on imports from China and 10% on all other imports—it could restrict Finland's growth, which relies heavily on exports to the U.S., accounting for over 13% of its export market. "Trade and security policy have rarely been as intertwined as they are today," remarked Rehn, emphasizing the importance of steering clear of trade conflicts among allies and advocating for negotiation over confrontation.
Overall, the Finnish economy still faces significant fiscal challenges. With projections for the public economy deficit to widen to 4% of GDP by 2025 and exceeding 3% up to 2027, the Bank anticipates rising public debt to reach its highest levels on record, at 87% of GDP by 2027. The Bank's estimates signify the necessity for additional fiscal adjustments totaling around four billion euros to stop the unsustainable debt growth, even as the government seeks to implement measures aimed at increasing revenue through employment initiatives.
Opposing these forecasts, the Ministry of Finance recently presented a more optimistic view, expecting growth of 1.6% for 2025, followed by slight declines to 1.5% annually through 2027.
Alongside these economic variables, it is noted by Statistics Finland, the country's population is growing primarily due to immigration. Preliminary statistics indicate Finland's population increased by approximately 32,700 individuals from January to November 2023, reaching around 5,637,000. This growth is attributed to net immigration, which has outpaced emigration during the same period. If trends continue, Finland's population could reach six million within the next 15 years.
With growth prospects highly contingent on improving economic conditions, lowered unemployment, and strategic fiscal spending, Finland's recovery appears on the horizon, albeit at a measured pace.
