Finland’s economy is finally gaining momentum – employment will determine the steepness of the recovery path
The Finnish economy is now expanding at a healthy pace, supported by the combined impact of several growth drivers. Persistently high unemployment continues to act as a drag, but once the labour market starts to improve, the conditions will be in place for a more vigorous upturn.
Expectations of a rapid acceleration in Finnish economic growth were somewhat tempered when second-quarter GDP growth was revised down from the preliminary estimate of 0.9% to 0.4%. Despite the volatility in GDP estimates during the first half of the year, the underlying trend in the economy has not changed materially, says Timo Vesala, Chief Economist at MuniFin.
“The cyclical recovery is being led by exports, while private investment is also beginning to gather solid momentum. Improving economic confidence and rising corporate order books point to a continued favourable cyclical development going forward.”
The crisis in the Middle East has weighed on Finland’s economic recovery less than feared, but accelerating inflation and higher lending rates have dampened private consumption. A further, more decisive growth phase in domestic consumption will require support from an improvement in employment.
“The labour market bottleneck will eventually ease, but this is now taking longer than usual. After a prolonged downturn, industrial production still has ample spare capacity, which is slowing the start-up of new recruitment. Companies are also uncertain about how artificial intelligence will reshape job profiles in the future and how these changes should already be reflected in hiring decisions,” Vesala says.
There are also positive signals in the labour market. The number of job vacancies edged up in the second quarter for the first time since spring 2022. Even so, given the current situation, we are raising our forecast for the average unemployment rate this year to 10.4%, although we expect employment to start recovering already towards the end of 2026.
We are revising our GDP growth forecast for the current year up to 1.8%, reflecting stronger-than-expected economic performance in the first half of the year. Growth is expected to strengthen to 2.0% next year and could be considerably faster if the turnaround in employment proves stronger than anticipated.
Geopolitical risks are not disappearing from the picture, however, and could continue to deliver unwelcome surprises to the economy.