The Finnish economy is in recession. The economy will continue to be weak in 2024 and will only start to recover at the end of the year. “The operating environment outside Finland is difficult, and the outlook for the economy continued to deteriorate during the autumn. At the same time though, inflation has fallen in Finland and the purchasing power of households has improved,” says Bank of Finland Head of Forecasting Meri Obstbaum.

The Bank of Finland has today published its economic forecast for the period 2023–2026. Gross domestic product (GDP) will be down by 0.5% for 2023, and in 2024 it will decrease by 0.2%. GDP will then grow again, returning close to its long-term average. GDP growth of 1.5% is forecast for 2025 and 1.3% for 2026.

The weakness in the economy is currently widespread. Higher interest rates are encouraging households to save rather than spend. Growth in consumption by households is being held back by the elevated prices and interest rates as well as by uncertainty about the future. A further factor restraining economic recovery is the notable reduction in investment. Investment in residential construction in particular is very low. Due to the weak cyclical conditions, the unemployment rate is rising temporarily.

In Finland, the period of high inflation appears now to be over. Inflation will remain at a modest level throughout the forecast period 2024–2026. Energy prices have fallen from the high levels seen in 2022 and are expected to decrease further. Due to the tightening of monetary policy and the weak economy, price pressures will continue to be minor, especially in 2024.

With inflation falling rapidly, the purchasing power of households is gaining strength. “Stronger purchasing power will lead to a rise in consumption by households, and the economy will start to pick up slowly. The growth in consumption will also be supported by a rise in wages and a still reasonably good employment situation,” says Obstbaum. In addition, the financial markets are expecting interest rates to fall in the forecast years, and export market growth will gradually recover, which will boost Finland’s GDP growth from the latter part of 2024 onwards.

Finland’s general government deficit is growing despite the fiscal adjustment efforts, and the accumulation of debt will continue in the immediate years ahead. The public debt-to-GDP ratio will already exceed 80% in 2026. Finland’s public finances will be undermined in the coming years by significantly lower growth in tax revenues and reductions in social security contributions, as well as by strong growth in social benefits paid and in public demand and interest expenditure. According to the Bank of Finland’s updated assessment, the long-term sustainability gap in Finland’s public finances is 4.5% of GDP.