Finland's Finance Ministry Forecasts Slow Economic Recovery Amidst Public Finance Strain

Modest Growth Expected After Prolonged Recession

Finland's Ministry of Finance released its autumn forecast on September 22, 2025, indicating that the nation's economy is showing early signs of recovery from a prolonged recession. However, the ministry warned that growth would remain modest, and public finances would continue to face significant strain. Gross Domestic Product (GDP) is projected to grow by 1.0 percent in 2025, followed by 1.4 percent in 2026, and 1.7 percent in 2027. These figures are largely consistent with projections released in June.

Mikko Spolander, Director General at the Finance Ministry, commented on the situation, stating, 'The Finnish economy is recovering from a prolonged recession, but it is taking a long time for public finances to climb out of a deep slump.' He further emphasized that even growth exceeding recent historical levels would be insufficient to permanently stabilize the national debt.

Persistent Strain on Public Finances

The forecast highlighted a challenging outlook for Finland's public finances, which are described as being in a 'deep structural imbalance.' Key figures include:

• The government deficit is expected to reach 4.3 percent of GDP in 2025.
• This deficit is projected to narrow slightly to 3.6 percent in 2026 and 3.1 percent in 2029.
• The debt ratio, which exceeded 85 percent of GDP in 2024, is forecast to stabilize briefly in 2027 before resuming an upward trend, potentially reaching 90 percent of GDP by 2029.
• The long-term fiscal sustainability gap is estimated at approximately 2 percent of GDP, or €7 billion, by 2029.
• Combined central and local government deficits are anticipated to surpass €14 billion by 2029, necessitating continued reliance on new borrowing.

Jenni Pääkkönen, a senior financial adviser at the ministry, characterized the projected increase in the debt ratio as 'a rather steep jump.' Finance Minister Riikka Purra underscored the severity of the situation, calling Finland's budget deficit 'a chronic problem and therefore even more dangerous.'

Factors Hindering and Supporting Recovery

Several factors are contributing to the slow pace of recovery. Despite a slowdown in inflation and falling interest rates, which have improved household purchasing power, consumer spending has not significantly increased. Many households are opting to save rather than spend, reflecting weak confidence and ongoing economic uncertainty.

Unemployment remains a significant concern, standing at approximately 9.4 percent of the labor force, one of the highest rates in the European Union. The ministry expects this rate to decrease to 9.0 percent in 2026 as economic activity strengthens. The construction sector also continues to be weak, with housing starts well below the level required to meet long-term demand.

Conversely, investment activity is expected to grow, driven primarily by defense procurement and energy transition projects. However, the overall economic outlook remains modest, influenced by structural weaknesses, subdued domestic demand, and global uncertainties, including trade policy shifts.