OP forecasts economic growth of Finland's regions

After a difficult last year, the economies of Finland's regions are showing signs of growth, according to the latest region-by-region forecast economic forecast published by OP Financial Group on Wednesday.

In addition to the growth centres, Northern Finland is predicted to see strong economic growth. While the labour market has mostly returned to normal following tightness caused by the recession, labour shortages continue in some of the regions in Ostrobothnia, Lapland and Kainuu.

Following the recession, Finland's regions are widely showing signs of economic growth.

GDP is expected to see positive development in 2025.

"Growth appears to be the strongest in growth centres in the regions of Uusimaa, Pirkanmaa and North Ostrobothnia. In Northern Finland, economic growth is predicted to be relatively strong in the regions of Lapland and Kainuu. In particular, the Kainuu region has seen strong economic growth in recent years and is predicted to continue to develop in the next few years at a rate close to the national average", said Tomi Kortela, Lead Economist at OP Financial Group.

The economies of nearly all regions of Finland are predicted to grow in 2024 and 2025 as the economy recovers following the recession.

The region-by-region forecast is based on OP's economic forecast in April, according to which Finland's gross domestic product (GDP) will shrink by 0.5 per cent in 2024 and grow by 2.0 per cent in 2025.

Between 2023 and 2025, the average annual growth rate in regions is predicted to vary from 0.7 per cent growth to a decline of nearly 1 per cent.

During the same period, the Finnish economy is expected to grow by 0.2 per cent.

According to the forecast, the rate of economic growth varies strongly between regions, partly due to differences in demographic trends as the population is growing in some regions and shrinking in others.

The economies of most Finnish regions grew in 2022, ending a long period of falling GDP in many regions.

Despite this, last year's recession is expected to have caused GPD to fall in all of the country's regions.

The labour market has largely returned to normal as a result of the poor economic situation.

"In the regions of Central Finland and Uusimaa, for example, the labour market can no longer be considered tight and the number of unemployed people in relation to vacancies has returned to relatively normal levels", said Kortela.

Still, there are differences between regions. In Lapland, Kainuu and South and North Ostrobothnia, the labour market remains exceptionally tight and the regions can be considered to suffer from a shortage of labour. This can be a hindrance to future economic growth.

"In many regions, the recovery from the pandemic resulted in an exceptionally tight labour market. As the economic situation has weakened, labour markets around Finland have largely returned to normal and there is sufficient labour for the upcoming recovery."

In 2023, the recession increased unemployment rates in nearly all regions. However, the development of the rate of unemployment has varied between regions as South Ostrobothnia, Lapland and Southwest Finland saw a decline in the rate of unemployment.

Unemployment was the highest last year in Kymenlaakso, with an unemployment rate of just under ten per cent.

The lowest rate of unemployment was in the South Ostrobothnia region, with just over four per cent.

The geographical location of regions has no clear connection to the development of economic growth. For example, both the best and poorest performing regions are located in Southern Finland, while regions in Eastern Finland have kept up with the national average in terms of economic growth throughout the 2000s.

Regions are more similar to one another in terms of production structure than previously as manufacturing has been overtaken by services. Despite this, there are differences between regions. In Uusimaa, for example, GDP is largely dependent on services, while in Ostrobothnia, manufacturing continues to form a significant share of economic output.

"The economic development of Finland's regions seems to be largely determined not by location but by their ability to either hold on to manufacturing jobs or replace them with jobs in the service sector with high productivity. It appears that regional economies can find growth through a variety of avenues", Kortela added.