Finland’s economic turnaround is already visible in investments
Finland can pretty much give up its economic growth expectations for 2025, but things are looking significantly better next year.
Finland’s economy was already showing promising signs of recovery in 2024, but the momentum slowed down towards the end of the year. Since then, the economy has contracted for three consecutive quarters.
The downward trend in private consumption continues due to weak consumer confidence, a sharp rise in unemployment, and cuts in social benefits. Reductions in public sector personnel and other austerity measures have, in turn, reduced public consumption.
“The recent economic data have been a disappointment due to the sluggishness of domestic consumption, but there are also encouraging signs under the surface,” says Timo Vesala, Chief Economist at MuniFin.
“Business cycle expectations have gradually strengthened across all major sectors, and investments are already on a surprisingly clear upward trend. Growth is particularly evident in machinery and equipment, but the construction sector has also passed its lowest point. The outlook for Finland’s export industry has improved overall, as evidenced by the significant strengthening of order volumes in the metal and chemical industries.”
Despite the glimmers of hope, the bleak start to the year will inevitably weigh on this year’s GDP figures. MuniFin lowers its GDP growth forecast for 2025 to 0.5 percent but maintains the forecast at 2.0 percent for 2026 and 2027.
The key driver of the economic recovery is the growth in investments, which is receiving significant additional momentum from projects related to the green transition. If the positive economic cycle that strengthens consumption, investments and employment truly takes off, there are opportunities for considerably faster growth. In the recovery phase following a long recession, a growth rate of even three percent should not be impossible.
“There has been no room for growth surprises so far due to households’ lacklustre willingness to spend. The sharp rise in unemployment has been the biggest stumbling block. The increased threat of unemployment has also made consumers cautious, even those whose financial situation has remained stable. At the same time, the recovery of the housing market has been delayed. That is why there is significant potential for recovery in private consumption once the economic turnaround becomes more apparent and employment begins to improve.”
Positive economic expectations also come with significant risks.
“While President Trump’s trade agreements might have reduced uncertainties in trade policy, it is still hard to assess the full economic impact of tariffs. Another issue is the unpredictability of internal developments in the United States. If politics were to intervene in the Fed’s decision-making, it would pose a risk to the stability of international financial markets and the global economy as a whole,” Vesala says.