From left, Finance Counsellor Jenni Pääkkönen, Director General and Head of Department Mikko Spolander, and Finance Counsellor Janne Huovari at the Finance Ministry’s economic forecast press conference in Helsinki on 22 September 2025. Photo: Vesa Moilanen / Lehtikuva
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Finland’s economy is showing early signs of recovery from recession, but growth will remain modest and public finances will stay under strain, according to the latest forecast published by the Ministry of Finance.
Gross domestic product is expected to grow by 1.0 percent in 2025, 1.4 percent in 2026 and 1.7 percent in 2027. The figures are broadly unchanged from projections released in June.
“The Finnish economy is recovering from a prolonged recession, but it is taking a long time for public finances to climb out of a deep slump,” said Mikko Spolander, Director General at the Finance Ministry. He added that reaching consensus on stabilising public debt would be a “shared national achievement”.
Despite falling inflation and lower interest rates, which have improved household purchasing power, consumption has not picked up. Many households continue to save rather than spend, reflecting weak confidence and uncertainty about the future. The ministry noted that this cautious behaviour, combined with high unemployment, is slowing down recovery.
Unemployment remains among the highest in the European Union, at around 9.4 percent of the labour force. The ministry expects the rate to fall to 9.0 percent in 2026 and to continue declining as economic activity strengthens. Growth in the labour force, driven by immigration and government employment measures, has so far translated mainly into higher unemployment rather than new jobs.
The ministry forecast also highlighted the role of investments. After two years of decline, investment activity is expected to grow, led by defence procurement and energy transition projects. The purchase of new fighter aircraft is pushing defence spending to record levels, while renewable energy initiatives and new technologies are creating longer-term investment growth.
Construction, however, remains weak. Housing starts are well below the level needed to meet long-term demand, and although sales have increased slightly, the sector is expected to recover only gradually.
Global conditions remain a key factor. Higher U.S. tariffs and the appreciation of the euro are weighing on Finnish exports, even as the euro area economy shows signs of recovery. Imports are growing faster than exports due to investment projects requiring significant foreign inputs.
On public finances, the forecast offers little relief. The government deficit is expected to stand at 4.3 percent of GDP this year and 3.6 percent in 2026, before easing to 3.1 percent in 2029. The debt ratio is projected to stabilise briefly in 2027 but then resume its upward trend. Defence spending and debt servicing costs are expected to remain heavy burdens on the central government.
The ministry estimated Finland’s long-term fiscal sustainability gap at about 2 percent of GDP, or €7 billion, by 2029. Combined central and local government deficits are forecast to exceed €14 billion at that point, creating continued reliance on new borrowing.
Spolander warned that even growth above recent historical levels would not be enough to permanently stabilise debt. He stressed the need for structural reforms and tighter alignment of revenues and expenditures.
Finance officials noted that while households are benefiting from slowing inflation and real income growth, the cuts to social benefits and higher consumption taxes introduced by Prime Minister Petteri Orpo’s government are also restraining demand.
The ministry concluded that while Finland is on the path to recovery, it will be slow, fragile, and shaped by domestic policy choices as well as international economic conditions.
HT
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Source: www.helsinkitimes.fi
