Finland’s economy heading out of recession

Overview

NOTE: This is an overview of the forecast. The full forecast will be published in January.

The global economy has continued to show steady growth despite the political and tariff-related uncertainties. However, in the immediate years ahead the growth in the global economy will slow a little and growth in Finland’s export markets will moderate. The growth outlook will continue to be overshadowed by uncertainties surrounding international relations and global trade. 

Financing conditions eased in the first part of 2025 and have remained more or less unchanged in the second half of the year. These easier financing conditions will support the growth pick-up in both the Finnish and euro area economies. The financial markets are expecting a slight rise in the 3-month Euribor rate at the end of the 2025–2028 forecast period. 

Finland’s economy is emerging from a phase of extremely low growth. Nevertheless, although the economy will improve, there is no strong expansionary phase in sight in the immediate years ahead. Growth in the Finnish economy for the full year 2025 will be just 0.2%. In 2026, the economy will grow by 0.8%, and in 2027 growth will climb to 1.7%. In 2028, the final year of the forecast period, growth will level out at 1.5%. At the end of the forecast period, growth in Finland’s economy will be above its long-term potential as a result of cyclical factors. 

Due to the weakened labour market and the still fragile level of consumer confidence, the full year 2025 will show no growth in private consumption. Consumption will start to rise in 2026, when real earnings growth gathers pace and the labour market gradually strengthens. Purchasing power will also be boosted by the reduction in the amount of interest payments made by households. As economic growth picks up, the labour market will also continue to recover, which will strengthen consumer confidence and support consumption growth in 2027–2028. 

Business investment will show a modest further contraction for 2025 as a whole, but will rebound to growth in 2026. This growth will stay strong in 2027 and 2028 as well. The factors behind this growth will include data centre investments and green transition projects, even though uncertainty and low production capacity utilisation will curb some investment plans. Growth in housing construction in the immediate years ahead will remain subdued. New-build housing construction is being held back by the difficult market for new homes, although this will be eased gradually when household incomes and consumer confidence grow. 

Export growth will be up for 2025 as a whole. This reflects brisk growth in goods exports, whereas service exports have slowed this year. The gradual improvement in export markets and the pick-up in investment demand as a result of the worldwide reductions in interest rates will support a modest increase in Finland’s exports in the years 2026–2028. Geopolitics and trade policy tensions will nevertheless curtail demand for some time to come. Imports will grow considerably, bolstered by defence procurement in particular. 

Inflation has fallen towards the end of 2025, to below 1.5%, and it will remain close to this in 2026 as well. In the early part of the forecast period, price pressures will be curbed by the weak economy and the fact that import prices have risen only modestly overall, but a rise in wages will have the opposite effect on consumer prices. Inflation will rise gradually as the economy strengthens, and will reach 1.9% in 2028. 

A turn for the better in the labour market has again been delayed on account of the weak cyclical conditions. Although the employment rate will rise in the immediate years ahead, the unemployment rate will still be almost 9% in 2028. The labour force participation rate and the supply of labour will remain high. The employment rate will rise steadily in the years of the forecast, but in 2028 it will still be below its 2022 peak. 

Finland’s public finances are deeply in deficit, and public debt is continuing to grow. The general government deficit as a percentage of gross domestic product (GDP) for the full year 2025 will be 3.7%. Fiscal consolidation in 2025–2027 is being implemented through cuts in public expenditure and increases in indirect taxation, but the reductions in personal and corporate income taxes will slow the fiscal adjustment. Major defence investments from 2026 onwards will initially deepen the deficit again, but in the two subsequent years the deficit will shrink, though only marginally. The public debt-to-GDP ratio will exceed 88% in 2025 and rise to 93% in 2028. 

The risks related to the growth forecast are predominantly on the downside. The recovery in the Finnish economy could be impeded by trade policy tightening, geopolitical tensions, financial market disruptions and any additional fiscal consolidation measures. It is also possible that the economy could grow more quickly than expected in the immediate years ahead. The pace of economic recovery at turning points in the business cycle has often proved to be faster than initially expected, and investments in particular could provide a positive surprise. The risks concerning the inflation forecast are evenly balanced.