Finnish Economic Outlook for 2023–2025

The Finnish Ministry of Finance has published the projections of economic developments in 2023–2025. Along with the short-term prospects, Economic Survey includes a medium-term economic outlook extending to 2027. The forecasts are based on data published by Statistics Finland and on other public statistical sources.

Key points from the economic overview of Finland, Spring 2023:

• Finland’s GDP is expected to contract by 0.2% in 2023. GDP growth will recover to 1.3% and 1.6% respectively in 2024 and 2025. After the outlook period, GDP growth is projected to be approximately 1.6% in 2026 and about 1.5% in 2027.


• Private consumption will decrease as rapidly rising prices and interest rates reduce the real disposable income of households, weaken its financial situation. The increase in interest rates has a large impact on people with housing loans, particularly as household debt has risen to over 130% of disposable income. Nevertheless, the situation of households is expected to improve already in 2023. Inflation will slow, wages and social benefits will increase considerably more than usual.


• Inflation is expected to slow down in 2023 as the prices of food and goods turn to a decline, tracking the prices of energy and raw materials. Inflation is also slowed by the rapid rise in interest rates and the subsequent decline in demand. However, prices will remain above the pre-crisis level.


• The increase in interest rates have a negative impact on economic growth. This is reflected especially in the housing market and the construction sector. Housing prices have fallen, residential construction has decreased in many countries, including Finland. Construction investments will also decrease substantially in 2023.


• The declining economic situation is also reflected in the labour market, thus, in 2023: the number of vacancies has already decreased, the number of employed people projected to decrease by approximately 0.5% , the unemployment rate will rise to 7%. Unemployment will increase particularly in the construction industry. So, the employment situation will weaken slightly in 2023, but will improve again from 2024. The employment rate is expected to increase to 74.2% by 2025, and to 74.9% in 2027.


• The general government debt ratio will increase throughout entire forecast period due to the growing deficits, slowing nominal economic growth and higher debt servicing costs.


• Central government budget deficit is projected to be EUR 11–12 billion per year in 2024–2027. The deficit will lead to even more debt and, when the cost of debt increases, the deficits will widen further. Debt will start to increase at an accelerating rate relative to the economy’s capacity to generate income.


• The general government deficit will begin to grow in 2023 as the growth of tax revenue slows and general government expenditure increases quickly. It will be 2.6% of GDP, and it will then increase gradually to approximately 3.1% of GDP in 2025. The deficit will narrow slightly in the medium term and amount to approximately 2.9% of GDP in 2027.


• In general, the economic outlook in Europe has improved, as the fear of a possible energy crisis has eased. The feared energy shortages have not materialised, and energy prices have returned to the level seen before the war in Ukraine began. However, concerns have increased with regard to the period of high inflation becoming prolonged and price increases becoming more widespread. Wages have increased less than prices on average.


• The European Central Bank has indicated it will raise interest rates to prevent inflation expectations from becoming de-anchored. Interest rates rising faster than it was previously expected, it leads to the reduce in demand and prevent economic growth. With reference to Finland, changes in market interest rates quickly lead to changes in the interest paid on loans by households and businesses. This, in turn, reduces household purchasing power in Finland this year. The Finnish economy went into recession at the end of 2022. The Ministry of Finance expects that the recession is projected to be moderate and short-lived. The economy will return to growth during the year 2023. However, it will not return to its previously projected path of growth, as current war in Ukraine has longer-term impacts on it.

The full information and the source text can be found at Finnish Government website.