Are the growth fundamentals in place after the downturn?

Economic Forecast 2025–2027

• A weak start to the year is weighing on this year’s growth forecast.
• Household consumption will still contract this year but is expected to return to growth in the coming years.
• Rising exports and investment will support economic growth.
• Public debt will continue to grow, though more slowly than in recent years.

Economic Conditions

According to preliminary data from Statistics Finland, Finland’s gross domestic product (GDP) grew by 0.4 percent last year, supported by net exports and public consumption. In contrast, private consumption and construction investment weighed on growth. Based on early-2025 data, this recovery has since stalled: GDP increased by 0.6 percent in the first half of the year compared with the same period last year, again driven by stronger net exports. Both public and private consumption, however, declined in the early part of the year.

The decline in public consumption reflects fiscal consolidation measures, while private consumption has remained unexpectedly sluggish. The underlying drivers of household demand have not weakened — interest rates have fallen, real incomes have risen, and consumer confidence has improved — yet household spending remains subdued. In the second quarter of 2025, the household saving rate rose to 7.3 percent, the highest level in the 2000s excluding the pandemic period. The sharp rise in unemployment has also constrained overall consumption.

Demand and supply

We are lowering our growth forecast for 2025 to 0.6 percent, 0.8 percentage points below our spring projection, mainly due to weaker domestic demand. Over the coming years, real income growth, the unwinding of pent-up demand, and less restrictive monetary policy are expected to strengthen growth. We project GDP growth of 1.5 percent in 2026 and 1.4 percent in 2027.

Key Assumptions

Our forecast assumes a relatively stable global trade environment, which would support Finnish exporters. An important step in this direction was the recent EU–US trade agreement, which introduces a 15 percent import tariff on European products. While such tariffs are high by historical standards, the EU’s relative competitiveness in the US market remains favorable. The main downside risk to exports stems from the possibility of weaker global trade, given the United States’ large share of world trade and its unpredictable trade policy. The euro area economy continues to expand steadily, albeit more slowly than key peers. Meanwhile, growing defense investment needs in Europe are boosting demand for Finnish exports.

A second key assumption concerns the recovery in household consumption. Consumption has declined in recent years for several reasons, the impact of which is expected to fade. First, because variable-rate mortgages are common in Finland, tighter monetary policy has been transmitted more quickly to household borrowing costs than in the euro area on average. With inflation now close to the ECB’s target, interest rates are expected to remain broadly stable over the forecast horizon. For mortgage holders, lower interest expenses should gradually support consumption. Second, cuts to social benefits have eroded purchasing power among low-income households. Combined with rising unemployment — especially in construction — these factors have dampened consumption, although the outlook should improve as investment activity picks up. Third, inflation has slowed markedly this year. We expect this to gradually lower households’ inflation expectations and further support spending.

Outlook

Uncertainty in the global economy has eased during the year. The outcomes of US trade policy are becoming clearer, though questions remain about the level of steel and aluminium tariffs. Increased European cooperation on defense investments is supporting regional growth. Germany’s policy direction has become clearer, while France’s domestic policy challenges persist. China’s export-driven economy continues to grow, but headwinds from its real estate sector and US tariffs weigh on prospects.

According to data for July, Finland’s unemployment rate stood at 9.6 percent — more than three percentage points above the euro area and EU averages. We expect unemployment to remain around 9.5 percent over the forecast period, even as the economy returns to growth. This reflects three factors:

1. weak short-term labor demand,
2. the persistence of long-term unemployment, and
3. improving labor productivity as the cyclical recovery gains traction.

The economy is thus expected to grow more through higher productivity than greater labor input.
The export outlook is moderately positive. The increase in goods exports this year mainly reflects two temporary factors: the low base effect from last year’s port strikes and the one-off delivery of a large cruise ship to the United States. Over the next few years, goods exports will continue to benefit from euro area growth, particularly as Germany’s economy recovers. Service exports, which surged last year, are expected to dip slightly in 2025 and then expand by around 2 percent annually in 2026–2027. Overall, we forecast export growth of 3.3, 2.3, and 2.1 percent in 2025–2027. After two years of contraction, imports will return to growth, increasing at roughly 2 percent per year throughout the forecast period.

Inflation has slowed further over the past year. In August, the annual change in the consumer price index was 0.5 percent, down from 1.2 percent a year earlier, mainly due to lower mortgage servicing costs following monetary policy easing. According to Statistics Finland, harmonized consumer price inflation was 2.2 percent, reflecting price increases excluding mortgage interest. We expect inflation to remain at 0.7 percent in 2025 before rising to 1.7 and 2.0 percent in 2026 and 2027, respectively.

Investment will pick up as residential construction gradually recovers and defense spending increases. Research and development investment will also grow, supported by additional public funding and new private-sector tax incentives. We forecast total investment growth of 3.2 percent in 2025, 4.1 percent in 2026, and 3.1 percent in 2027.

Public debt is projected to continue rising, stabilizing at around 87 percent of GDP by the end of the forecast horizon. Fiscal consolidation measures will increasingly restrain spending, but revenue growth will remain weak due to sluggish tax receipts. At the same time, higher net interest costs and defense spending will continue to push up public expenditure.

Figure 1. Trend indicator of output and quarterly GDP 2016:01–2025:07

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