Investments and exports lift Finland out of the slump
Renewed military action in the Middle East has once again significantly increased uncertainty in the economic outlook, but we still expect Finland’s economy to shift into clear growth over the course of this year.
Our forecast is based on the assumption that hostilities in the Middle East will subside within a few weeks and that disruptions to energy supplies and air traffic in the Persian Gulf will begin to ease.
Finland’s economy finally turned upwards in the final quarter of 2025, but overall the year remained a disappointment. Fiscal adjustments in public service provision particularly weighed on GDP growth. Fortunately, encouraging signs were already visible last year across key private demand indicators.
“Private investment grew at a fairly solid pace, and private consumption also turned to modest growth in the second half of the year. Exports suffered a setback in the final quarter, but the longer‑term trend in exports is also upward,” says Timo Vesala, Chief Economist at MuniFin.
The deepest downturn in construction is also now behind us.
“However, the economic recovery remains at an early stage and has so far been driven mainly by growth in exports and investment. The recovery in private consumption continues to be constrained by a self‑reinforcing deadlock: high unemployment weighs on consumer confidence, while weak consumption, in turn, delays an improvement in employment. This vicious circle is likely to be broken as the positive employment effects in capital‑intensive industries gradually spill over into labour‑intensive service sectors.”
According to Vesala, it would be beneficial for Finland if the European Central Bank were to continue cutting interest rates. At present, however, this does not appear likely, as military action in the Middle East has pushed up energy prices and increased inflation risks.
“Any ECB interest rate hikes would, of course, be poison for Finland’s nascent economic recovery,” Vesala notes.
The longer the crisis in the Middle East continues, the more serious its effects on global energy supply will be.
“Countries with low energy self‑sufficiency are particularly vulnerable. Finland’s position is relatively strong in this respect, but several of our key export markets in Europe and Asia would be adversely affected if the energy shock were to persist,” Vesala says.
Even a partial recovery accelerates growth to 1.5%
According to MuniFin’s economic forecast, even a partial recovery will lift GDP growth to 1.5 per cent in 2026. In 2027, the recovery will strengthen further as domestic demand picks up and the recovery in the construction sector gains additional momentum. MuniFin forecasts GDP growth of 2 per cent for the following year.
The improvement in the economic outlook will also gradually support employment.
“Due to the sharp rise in unemployment at the end of last year, the average unemployment rate in 2026 will remain slightly higher than the previous year’s average, at 9.8 per cent. Unemployment will begin to ease more markedly only in 2027,” Vesala estimates.