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The global political landscape is shifting in a way that poses serious risks for Europe, according to Olli Rehn, Governor of the Bank of Finland. He stresses the urgency of strengthening European security and increasing support for Ukraine.
Uncertainty in the eurozone is holding back investment and exports, with risks tilting towards weaker growth.
Inflation is stabilising around the 2% target, but economic expansion remains sluggish. Increased defence spending could, however, boost production in the euro area.
The latest Eurosystem forecast projects an inflation rate of 2.3% in 2025 and 1.9% in 2026. Indicators of underlying inflation suggest that the target level will be sustained.
“The European Central Bank’s Governing Council decided to further lower interest rates this month, as inflation has fallen and the economic outlook has weakened,” Rehn said. “We are not committing to a fixed rate path but will assess conditions at each meeting.”
The ECB cut the deposit rate by 0.25 percentage points to 2.5%, marking the sixth consecutive reduction. The next policy decision will be made in April.
Finland’s economic recovery remains slow
Finland’s economy is emerging from a recession, but growth remains weak due to low investment. The Bank of Finland’s latest forecast expects GDP to expand by 0.8% in 2025 and accelerate to 1.8% in 2026, before slowing to 1.3% in 2027. The outlook remains uncertain, with an increased risk of weaker-than-expected growth.
Trade war could weaken global economy
Bank of Finland calculations suggest that US tariffs targeting EU and Chinese imports could reduce global GDP by over 0.5% in both 2025 and 2026. The euro area would likely suffer an even greater impact.
Washington has already imposed significant trade restrictions, and further tariffs on EU imports would hit Finnish exports.
“Widespread US tariffs on imports from Europe would harm Finland’s export sector, as the United States is a key market,” Rehn said. “High uncertainty alone can dampen private consumption, investment, and demand in Finland’s export markets.”
Europe must address security and economic challenges
Rehn emphasised the need for increased defence spending at a time when EU member states are already struggling with high public deficits.
“Defence investments must be strengthened through common European solutions that effectively enhance our shared security,” he said.
HT
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Source: www.helsinkitimes.fi
