Finland’s economy is transitioning from a recession toward a slow recovery, but significant challenges remain ahead. According to the Bank of Finland’s forecast, the economy is expected to contract by 0.5% in 2024 but will start to grow at a pace of 0.8% in 2025, strengthening to 1.8% in 2026. By 2027, growth is projected to stabilize at 1.3%, aligning with Finland’s long-term growth potential.
Private consumption will initially recover slowly, hindered by weak consumer confidence, rising unemployment, and tighter fiscal policies. However, interest rates are expected to decline, supporting consumption and investment. Business investments in production assets, such as buildings, machinery, and equipment, are projected to grow from 2025 onwards, but the recovery in housing construction will take longer.
In terms of exports, Finland has experienced two weak years. Exports are set to gradually improve from 2025 as global economic conditions strengthen and declining interest rates boost demand for Finland’s export-oriented investment goods. However, the sluggish growth in the euro area and tightening U.S. trade policies may temper the pace of export recovery.
Inflation in Finland has slowed significantly in 2024. Tax hikes are expected to contribute to higher consumer prices in the following year. During 2026–2027, strengthening economic conditions and improving household purchasing power are expected to sustain moderate inflation, which will remain below 2% throughout the forecast period.
The public economy remains deeply in deficit despite the recovery in economic growth and the government’s fiscal consolidation measures. The deficit-to-GDP ratio is expected to reach 4% in 2024 and fall below 3% only by 2027. Meanwhile, the public debt ratio is set to rise to 87% of GDP by 2027, signaling that Finland’s debt trajectory remains unsustainable.
As part of a regular reassessment of its foreign exchange reserves, the Bank of Finland is increasing its reserves by approximately €2 billion, raising the total to around €9 billion. The reserves are being bolstered primarily through purchases of U.S. dollars, with smaller allocations to the British pound and Japanese yen. Concurrently, the Bank of Finland plans to sell about 10% of its gold reserves to strengthen its capacity to manage increased foreign exchange risk. Following the sales, Finland’s gold reserves will amount to approximately 44 tons, valued at around €3.5 billion.
The management and maintenance of foreign exchange reserves are among the Bank of Finland’s statutory duties. These reserves play a critical role in preparing for future uncertainties and safeguarding the country’s external payment capacity during crises. Foreign exchange risk represents the most significant risk associated with the Bank’s financial assets, and the expansion of the reserves substantially increases this risk.
Thus, Finland’s economic recovery is underway, but it is slow, with many uncertainties. Strengthening consumer confidence, improving employment, and balancing the public economy are key challenges in the coming years. Simultaneously, the Bank of Finland is preparing for potential economic crises by increasing its foreign exchange reserves and managing associated risks.
Inflation Slows, but Economic Pressures Persist
In Finland’s economic struggle, the slowdown in inflation and declining interest rates offer a momentary respite, but the overall picture remains complex. While the pace of consumer price increases has eased, this alone is insufficient to restore household purchasing power, which has been eroded by high interest rates and rising energy costs. Tax hikes will continue to strain household budgets, particularly in 2025.
At the same time, the state of public finances influences structural factors in inflation. While government fiscal consolidation measures aim to curb the public deficit, they may dampen domestic demand in the short term. On the other hand, by the end of the forecast period in 2026–2027, stronger economic conditions and improving household purchasing power will create the foundation for moderate and more sustainable inflation. However, this also requires a recovery in consumer confidence and wage growth that supports purchasing power without reigniting price pressures.
Slowing inflation is a necessary but insufficient condition for economic recovery. The challenge in the coming years will be to balance growth in such a way that both households and businesses maintain their operational capacity amid tightening global economic pressures.
