Following two years of recession, real GDP is expected to grow by 1.0% in 2025 and 1.3% in 2026. The unemployment rate is forecast to decline to 8.3% by 2026, while HICP inflation is set to remain below 2% over the forecast horizon. The economic recovery and fiscal consolidation measures are projected to reduce the deficit from 4.4% in 2024 to 3.4% by 2026. The public debt-to-GDP ratio is set to increase to 87.5%.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | -0,1 | 1,0 | 1,3 |
| Inflation (%, yoy) | 1,0 | 1,7 | 1,5 |
| Unemployment (%) | 8,4 | 8,6 | 8,3 |
| General government balance (% of GDP) | -4,4 | -3,7 | -3,4 |
| Gross public debt (% of GDP) | 82,1 | 85,6 | 87,5 |
| Current account balance (% of GDP) | -0,8 | -0,7 | -0,7 |
Exiting a two-year recession
In 2023 and 2024, real GDP contracted by 1% and 0.1% respectively, dragged down by investment, especially in construction. The decline in the construction sector, however, seems to have bottomed out in 2024, as interest rates began to decrease. Private consumption remained subdued as consumers postponed major purchases in a context of rising unemployment. At the same time, exports of services grew strongly and compensated for losses in exports of goods. Overall export growth was just above zero for the second year in a row. With imports declining, net exports actually supported growth, as did government consumption.
At the beginning of 2025, data on production and some sentiment indicators pointed to a continued recovery. Rising incomes driven by wages increases are expected to stimulate private consumption. Moreover, public investment is set to be boosted by purchases of military equipment in 2025 and 2026. However, the geopolitical uncertainty, planned reductions in social benefits, and weaknesses in the labour market are set to have a negative effect.
In particular, trade policy uncertainty is expected to make corporations rethink their investment plans. Increases in tariffs are also projected to take a toll on exports, though exports of services to the US are projected to continue contributing positively to growth over the forecast years. In addition, Finland is expected to deliver a large cruise ship which significantly adds to exports in 2025. In 2026, supportive financing conditions and receding uncertainty are expected to support a stronger recovery.
Overall, real GDP growth is projected to reach 1.0% and 1.3% in 2025 and 2026, respectively.
Rise in unemployment coming to a halt
In a context of weak economic activity, the unemployment rate reached 8.4% in 2024 and stood close to 9% in the beginning of 2025. Major improvements in the labour market seem to be unlikely given the high uncertainty in the short term. Still, the economic recovery should support employment over the forecast period. In recent years, an increase in immigration has helped to somewhat mitigate the decline in the working-age population, which will be important to bolster labour supply as the economic situation improves. The recently negotiated wage increases exceed projected inflation, supporting real disposable income over the forecast horizon.
Price pressures receding despite VAT hike
HICP inflation declined significantly in 2024 as energy prices decreased. Prices of unprocessed food also decreased, following a surge in 2022 and 2023. However, an increase in the standard VAT rate to 25.5% - in force since September 2024 – pushed inflation higher in the last quarter of 2024 with a positive carry-over effect into 2025. Nonetheless, lower prices of non-energy industrial goods, further decreases in energy prices and moderating services inflation are expected to exert downward pressure on overall inflation. HICP inflation is projected to reach 1.7% in 2025 before declining to 1.5% in 2026.
Fiscal consolidation set to reduce deficit
The general government deficit increased from 3.0% in 2023 to 4.4% of GDP in 2024. This steep increase was due to a sustained growth in expenditure, coupled with a slower rise in revenues. The latter was related to cuts in social security contributions and adverse macroeconomic conditions which reduced both income and product tax receipts. Growth in expenditure was largely driven by rising social security payments and public investment.
In 2025, the general government deficit is expected to decline to 3.7%, driven by the consolidation measures adopted in April 2024. Key revenue-enhancing measures include the aforementioned increase in VAT rates and higher sickness-related social security contributions, while reductions in government intermediate consumption are expected to slow down expenditure growth. Cuts to social benefits and the freeze of the indexation of social benefits adopted in 2023 are expected to show their effect in 2025 as well. In 2026, the economic recovery is projected to add a cyclical boost to revenues, partly offset by tax cuts decided in April 2025 while the delivery of further military equipment is set to increase expenditure. Overall, in 2026, the general government deficit is forecast to decrease to 3.4%.
The debt-to-GDP ratio reached 82.1% in 2024 and is forecast to increase further to 85.6% in 2025 and 87.5% in 2026, due to persistent (albeit declining) deficits.