LEHTIKUVA
- Next Article Northern lights likely visible across Finland this week
Finland’s economy is set to grow just 0.6% in 2025, according to a forecast published by Pellervo Economic Research (PTT), which warns that international instability and rising trade barriers are stifling recovery both at home and abroad.
Despite low inflation, a rebound in construction, and signs of improving consumer purchasing power, the national economy remains constrained by geopolitical tensions, policy uncertainty in the United States, and high public deficits driven by defence spending.
The forecast, released on Tuesday, predicts modest improvement next year, with GDP growth expected to reach 1.7%.
“The forecast has been prepared in exceptionally uncertain conditions,” said Emilia Gråsten, economist at PTT. “Developments in international politics are now shaping Finland’s and Europe’s economies more directly than before. A ceasefire between Ukraine and Russia may occur, but there are few signs of lasting peace. Meanwhile, Trump’s proposed tariff policies are already weakening growth prospects in the US, China and Europe.”
While prolonged trade tensions threaten global investment and export demand, Finland’s service exports to the United States are expected to remain relatively resilient, as they are less vulnerable to tariff changes than goods.
In Europe, fiscal stimulus and rising public spending are lifting growth expectations for 2026. Germany’s large-scale investment programme is expected to benefit Finnish export industries in particular.
Interest rate cuts in the eurozone are nearing an end, with the European Central Bank likely to adjust course in response to fiscal expansion. PTT forecasts the 12-month Euribor will average 2.3% this year and 2.5% in 2026. However, should risks in Ukraine or the US escalate further, interest rates could fall again — possibly returning to zero.
Construction begins slow recovery
Years of weak investment have been driven by poor growth expectations and a collapse in housing construction. Public sector investment is increasing due to defence procurements, but private investment is expected to remain subdued in 2025.
Housing construction has reached its lowest point, and activity is expected to pick up over the summer. Falling interest rates are supporting demand, but uncertainty among households and investors continues to dampen the housing market.
Inflation has eased. Consumer prices are projected to rise by 1.3% in 2025 and 1.7% in 2026. Combined with wage increases, this will support household purchasing power. Still, real earnings remain near 10-year lows, limiting larger purchases.
Employment stagnates, long-term joblessness rises
Employment levels will remain largely flat this year, but are expected to improve in 2026, with the employment rate projected to rise to 72.2% and the unemployment rate to fall to 8.4%. A rebound in construction and stronger consumption are expected to drive the upturn.
However, long-term unemployment has increased sharply, now exceeding 110,000. Employment in professional, scientific and technical sectors has declined, and joblessness among university-educated workers is on the rise.
Henna Busk, senior economist at PTT, said work-based immigration has become increasingly cyclical.
“It expands during periods of growth and contracts in downturns. We expect work-based immigration to slow this year, before picking up again in 2026,” she said.
Public finances under strain from defence costs
Finland’s public deficit is projected to remain at 3.7% of GDP this year, with no improvement expected in 2026. Defence and healthcare costs are driving the shortfall.
PTT recommends defining long-term defence spending needs more clearly and offsetting them through targeted tax increases and spending cuts. In the short term, however, some additional defence funding should be financed through debt.
“If we attempted to cover the short-term defence costs by cutting other spending or raising taxes now, we risk harming the foundations of growth and wellbeing,” said Markus Lahtinen, Managing Director of PTT.
He added that Finland’s wellbeing regions were initially underfunded, leading to higher deficits than expected. While fiscal discipline should remain tight, PTT argues it would be unwise to force regions to balance their budgets by the end of 2026, as doing so would lead to cuts that undermine both health and economic outcomes.
HT
- Next Article Northern lights likely visible across Finland this week
Source: www.helsinkitimes.fi
