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Since the COVID-19 pandemic, the household savings rate in the euro area has been exceptionally high.The savings rate has been driven up in particular by the decline in households’ real wealth, higher interest rates and increased public deficits. Increased uncertainty due to the Middle East war and higher energy prices are slowing the recovery of private consumption.

Economic growth in the euro area has been undermined in recent years by the erosion of competitiveness in relation to the United States and China. This has been mainly attributable to the subdued growth in labour productivity and the fact that energy has remained significantly more expensive than in competitor countries.

Due to the higher interest rates, the number of households that considered themselves over-indebted also increased among middle- and high-income households.

In recent years the Finnish labour market, with declining employment and rising unemployment, has been considerably weaker than the euro area labour market. Both cyclical and structural factors underlie recent labour market developments in Finland and the euro area.

When the Bank of Finland produces forecasts for the Finnish economy, the main tool it uses is Aino, which is a dynamic stochastic general equilibrium (DSGE) model. The article describes the forecasting process, the features of forecasting models and their key role in economic analysis at the Bank of Finland.

Defence spending is expected to increase significantly in the euro area in the coming years. Until now, euro area defence spending has mainly consisted of consumption expenditure, such as personnel costs. Growth effects would likely remain temporary and would support a number of specific manufacturing industries.

There are considerable differences between countries of the euro area in the prevalence of variable rate bank loans. According to recent research by the authors, the extent to which bank loans are variable rate loans influences how the key ECB interest rates affect the demand for corporate loans.

Wage inflation is one of the most significant factors affecting consumer price inflation, and its impact is strongest in the service industries. Wage inflation in the euro area is monitored using a variety of indicators that complement each other.

In early 2025, the Bank of Finland conducted a survey on the prospects, benefits and risks of quantum technology in the financial sector. Based on the survey responses, quantum tech-nology has the potential to reshape business activities significantly in the long term. Only a few tests and practical trials have been conducted so far, however, as the technology is im-mature. As the opportunities of quantum technology, respondents cited the improvement of risk management and information security and the development of investment activities. In-formation security was also highlighted among the risks, however.

Inflows into the labour force have been higher than outflows in recent years. This has led especially to a rise in employment, but in recent years also a simultaneously high unemployment rate.

Along with many other European countries, Finland intends to increase its defence spending. This would increase Finland’s public expenditure and spur economic growth. The larger the share of defence procurements purchased from within the euro area, the more favourable the impact.

Finland’s country risk has remained low, and the weakened security situation has not been evident in investor behaviour. Stable institutions and efforts to reduce government debt help keep country risk in check.

A trade war would pose challenges for exporting companies in particular. Nevertheless, the debt-servicing ability of companies in Finland is good, for the most part. The greatest difficulties have been faced by small businesses and by sectors such as construction.

Finnish mortgage borrowers coped well with their loan servicing costs during the period of steep rises in interest rates. Borrowers should ensure they are prepared for various kinds of financial risks in the future too.

Europe needs its own means of retail payment and more competition. Whereas domestic payment solutions have emerged in Europe, in Finland payment is almost entirely dependent on international card payments.

Finland has a long-standing tradition of building preparedness across the sectors in society. The comprehensive approach to preparedness supports the resilience of the financial sector and society as a whole. In preparedness work, Finland needs Europe and Europe needs Finland.

Since the global financial crisis, investment has grown more slowly in the euro area than in the United States or the United Kingdom. There is no lack of savings in the euro area, but there are not enough attractive investment opportunities.

Import tariffs imposed by the United States would weaken growth everywhere and it seems there would be no economic winners. A trade war could even lead to businesses postponing investments and growth in the economy slowing down significantly.

The significance of Finland’s service exports has grown rapidly. Service exports comprised about one third of the total value of exports in 2023. Finland’s service export destinations are dominated by a fairly small number of countries, the most important being the United States.

Climate change and biodiversity loss pose threats to financial stability. The financial sector in Finland seems to have less exposure to emissions-intensive businesses than in many other euro area countries, but the risks surrounding the transition to carbon neutrality can hardly be avoided in Finland either.