Economic Outline

Economic Indicators

Despite being vulnerable to the international conjuncture, Finland is often cited as a model example for its economic performance, competitiveness and innovative success. However, following a contraction in 2023 (-1.2%), Finland's real GDP growth remained weak in the first half of 2024. Goods exports dropped sharply in the first quarter due to prolonged port strikes, while private consumption stagnated amid rising unemployment and social benefit cuts. However, government consumption and net exports recently bolstered growth, with strong services exports and steady equipment investment signalling a potential recovery. Despite these positive trends, real GDP contracted an estimated 0.5% in 2024 due to a significant negative carryover effect (Bank of Finland). Real GDP is projected to grow by 1.5% in 2025 and 1.6% in 2026 according to the EU Commission (0.8% and 1.8%, respectively, as per the Bank of Finland), driven by domestic demand despite planned fiscal consolidation measures taking effect mainly in 2025.

In 2024, Finland's general government deficit rose to around 3.7% of GDP, up from 3.0% in 2023, driven by higher government spending and weaker public revenue growth. Increased government consumption, social benefits, and rising interest expenses were key factors. On the revenue side, cuts in social security contributions and lower tax receipts due to the economic slowdown further widened the gap. The deficit is projected to decline to 3% of GDP in 2025 as consolidation measures take effect and revenue benefits from economic recovery. These measures include expenditure cuts and the full impact of the 2024 VAT rate hike alongside higher taxes on income and social contributions. By 2026, the deficit is expected to shrink to 2.5% of GDP, with revenue recovery outpacing slower expenditure growth (data from the EU Commission). The general government debt-to-GDP ratio stood at 81.4% in 2023, with a small increase attributed to the primary deficit within central government finances, as well as deficits in local governments. The projection indicates a continued upward trend in the general government debt-to-GDP ratio, reaching 83.4% in 2025 and further escalating to 84.3% next year (IMF). Declining energy prices continued to slow down inflation and kept overall price increases at 1.2% in 2024 (from 4.3% one year earlier). Mostly due to the higher VAT rate, HICP inflation is forecast to increase to around 2% over the forecast horizon. High pension sector assets, totalling 94% of GDP at the end of March 2024, with over one-third held in public pension funds, remain a key rating strength. Alongside ongoing reform plans, they help alleviate the impact of a rapidly ageing population. Long-term projections suggest these assets will decline to about 75% of GDP by 2050 despite demographic challenges (Fitch Ratings).

Finland's GDP per capita – estimated at USD 57,181 (PPP) in 2025 by the IMF - is among the highest in the world and higher than the EU-27 average, allowing the country to offer a high living standard. The distribution of wealth is relatively balanced, although social inequalities have risen in recent years. Finland is the European country most impacted by an ageing population and the fall of its labour force, a phenomenon that weighs heavily on its public finances. Other challenges that the country will be facing are the decreasing productivity in traditional industries and the need for a reduction of high labour costs. Amid a declining vacancy rate, employment growth slowed to 0.8% in 2023, impacted by a sharp decline in the construction sector, while the unemployment rate rose to 7.2%. Employment contracted further in 2024, reflecting weakened economic activity, particularly in manufacturing, construction, and professional services, though labour shortages persisted in sectors like healthcare. With improving economic conditions, the unemployment rate is expected to decrease to 7.4% in 2025 and 7.3% in 2026, down from 8.3% in 2024.

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