Bank of Finland lowers 2025 growth forecast, govt debt on rise

The country’s economy will show a contraction of 0.5% for 2024, according to forecast for the Finnish economy for the period 2024–2027 published by the Bank of Finland on Tuesday.

The forecast reduced the growth in Finland next year to 0.8 percent. In its previous estimate in September, it had predicted a 1.1 percent growth in 2025.

The economy will grow by a higher rate of 1.8% in 2026.

In 2027, at the end of the forecast period, growth will soften to 1.3%, which is close to the long-term growth potential.

“Consumer spending will recover slowly to begin with, as consumers’ confidence in the economy is weak, unemployment still rising and fiscal policy growing tighter. On the other hand, interest rates are expected to come down further, which will support consumption and investment,” said the Bank of Finland’s Head of Forecasting, Juuso Vanhala.

As the future outlook improves, businesses will start to invest in construction, machinery and equipment.

Non-residential investment will already be up in 2025, but in residential construction a clear improvement will take longer to come about.

“As far as exports are concerned, the past two years have been weak. Exports will gradually pick up from 2025 onwards, when the economy in Finland’s export markets gathers pace and the worldwide reduction in interest rates spurs demand for Finnish exports of investment goods. But subdued growth in the euro area economy will curb the improvement in Finland’s exports,” said Vanhala, adding that the anticipated tightening of trade policy by the United States also threatens to dampen the growth in Finnish exports.

Inflation in Finland has fallen considerably during 2024. In 2025, increases in taxation will affect the inflation rate.

In 2026–2027, the upturn in the economy will gather pace and household purchasing power will rise, which means a modest inflation rate will be sustained by domestic consumer demand. Inflation in Finland will remain below 2% for the entire forecast period.

Finland’s general government finances will remain deeply in deficit, despite the growth pick-up in the economy and the impact of the government’s substantial fiscal adjustment measures. Finland’s fiscal deficit for 2024 will rise to 4% of gross domestic product.

The deficit will not fall below 3% until 2027. The public debt ratio will rise to 87% in 2027.

The sustainability gap is anticipated to be about 2%. This means that public debt accumulation is still on an unsustainable path.