Economic recession in Finland easing: OP

Economists of the OP Financial Group estimated that the economic recovery in Finland will continue steadily throughout the rest of the year and will gather strength during 2025, said OP in a press release on Tuesday.

On average, gross domestic product (GDP) is expected to decrease in 2024 by 0.5% and grow by 2.0% in 2025.

In the most recent economic review, economists’ estimates remain unchanged from the April forecast.

“The economy is showing both positive and negative signs. A positive sign is that the darkest times in terms of the economy have passed, and the economy grew even faster than expected in the first half of the year. A negative sign is that, based on recent information, the recovery in the export market will still remain sluggish in the near future. As a whole, the economic prospects for Finland have remained unchanged at the annual level”, said OP Financial Group’s Chief Economist Reijo Heiskanen.

The Finnish economy rebounded during the first half of the year. The economy will continue its steady recovery throughout the rest of the year, and it will gain speed next year, supported by decreased interest rates and a strengthening export market.

Economic growth will be relatively positive in 2025. However, the upturn only means a return to a sluggish growth trend, and the growth rate of GDP will slow down in 2026 to 1.3%.

In spring, exports suffered from industrial actions but bounced back at the beginning of summer. As central export markets are recovering in Europe, exports will gain momentum and will continue to grow quite rapidly next year.

The rise in interest rates hit investments in residential construction particularly hard, and they have been the weakest link in the Finnish economy.

Construction has already started clawing out of the deepest pit, and this will be clearly visible in investments next year. Investments will grow rapidly in the next few years.

Consumer spending has increased in recent years as people have spent their savings gathered during the years of the COVID-19 pandemic.

This year, real income is expected to increase quite well, but consumers are saving more than they used to so spending will grow sluggishly. Next year, spending is expected to pick up and grow in line with increasing income.

In recent months, inflation has remained low in Finland. In autumn, inflation will rise due to the increase in VAT, for example, and return to around two per cent for the next few years.

“Inflation is expected to jump to around two per cent in the coming months. Still, this does not stop spending from recovering, as real income is increasing well as a whole”, said Heiskanen.

Unemployment increased and employment decreased until last spring. At the moment, the labour market situation seems to be stabilising, and as the economy recovers, the labour market will pick up again. The amount of employed people will rise in 2026 to its all time high, but the employment rate will fall behind its peak in 2022 due to an increasing working age population.

“As the working age population is increasing and there are more people in the labour market, the economic growth potential is enhanced. The development of labour input will unlikely be an issue for the outlook for growth in the longer term. The issue will most likely relate to the development of labour productivity”, Heiskanen added.

The public deficit is at its highest in the current year and will decrease in the coming years due to adjustment measures and the economic recovery. In 2026, the deficit will remain close to its structural level.