Households have cut spending in Finland. Photo: Antti Aimo-Koivisto / Lehtikuva
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Finland’s expected economic recovery has stalled, with the Research Institute of the Finnish Economy (Etla) lowering its 2025 GDP growth forecast to 0.8 percent. The revision comes amid sluggish domestic consumption and weak labour market performance, despite strong exports and rising public investment.
Next year, Etla expects growth to improve to 1.4 percent. But for now, household consumption is seen as the weakest link in the country’s recovery. Consumption has declined for the third consecutive year, returning to 2018 levels, even as real wages improve.
“Households are cautious,” said Päivi Puonti, chief forecaster at Etla. “Concerns over employment, savings measures, and global crises have reduced consumption. We expect a turnaround next year.”
Despite a promising start, growth momentum faltered in mid-2025. Official data revisions confirmed GDP grew by under 0.5 percent in 2024, ending a two-year downturn. But expectations for a sustained recovery have been pushed back again.
Etla cites a partial easing of global trade tensions, particularly after tariff negotiations between the EU and United States. This has helped boost demand from trading partners, with Finland’s export volumes rising.
Even so, Puonti said exports are not enough to power the economy alone.
“This year’s export gains include exceptional one-off items like cruise ship deliveries. Net exports, the difference between exports and imports, do not provide enough lift,” she said.
Imports are expected to grow in 2026, driven by increased private consumption, investment activity and fighter aircraft deliveries.
Etla projects overall investment to rise by 2.5 percent this year and nearly 6 percent next year. Public investment, especially in research, defence and infrastructure, is supporting the trend. Machinery and equipment purchases are increasing, and the institute notes that green investment could become a significant growth driver if realised.
On inflation, Etla forecasts near-zero price growth for the current year, aided by lower interest costs. Inflation is expected to edge above 1 percent next year before stabilising around 2 percent.
Unemployment is forecast to rise to 9.3 percent in 2025 before falling to 8.8 percent in 2026. The number of employed persons dropped in early 2025, with service sectors particularly affected.
Etla’s report also highlights concerns about long-term public finances. The combined deficit of central and local government remains above €10 billion, or over 4 percent of GDP. Public debt is expected to reach 88 percent of GDP by 2027.
Puonti said government spending commitments, including multi-year investment programmes and increases in defence and R&D, are pushing short-term expenditure higher, even if some of these measures may support growth later.
“These costs mean that future governments will still face significant consolidation needs,” she said.
Etla Director Aki Kangasharju criticised the lack of risk-taking in economic policy, urging bolder action to spur growth.
“Once again, expectations have not been met and forecasts are being revised downward. We need more willingness to take risks,” he said.
Kangasharju said Finland’s fundamentals remain solid, but the economy is not moving.
“There are no clear barriers to growth beyond demographic change. That points to a lack of ambition,” he said. “We need more aggressive economic policy, even if the results are uncertain.”
He proposed measures such as lowering marginal income tax rates, opening education to competition, reducing corporate tax, and reconsidering the economic benefits of immigration.
“The longer zero-growth continues, the more boldly we must experiment with policies that create growth and appetite for growth,” Kangasharju said.
HT
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Source: www.helsinkitimes.fi
