Finnish economy to recover gradually, although the consequences of the war in the Middle East are slowing the recovery, according to the forecast of the financial group OP Pohjola (OP).
Finland's GDP is forecast to grow by 1.0 per cent in 2026, and by 1.5 per cent in 2027, said OP in a press release on Monday.
The forecast for 2026 was lowered from 1.5 per cent to 1.0 per cent, while the forecast for 2027 remained unchanged.
At the end of last year, the Finnish economy started to recover from the drop that occurred during the early part of the year, when the economy grew only slightly on average.
Data for January–February this year suggested that the economy has continued to recover.
However, the war in the Middle East is once again slowing the economic recovery.
Higher inflation and increased uncertainty will probably impact consumption during the spring and make companies more cautious with their investment decisions.
"The war in the Middle East and its consequences will inevitably weaken Finland's economic development. Finland's economy will get through the short-term spike in oil prices and rise in uncertainty, but it will take a hit. For example, payment card data does not, for the time being, indicate any significant change in consumer behaviour," said OP Pohjola's Chief Economist Reijo Heiskanen.
Oil prices play a decisive role in the outlook
The path of oil prices will be decisive for the economic impact of the war in the Middle East.
The forecast is based on the assumption that oil prices will ease after rising for a few months and fall to USD 70 per barrel by the summer.
Private consumption will grow this year in line with the increase in disposable income, that is at a moderate pace.
The savings rate will rise temporarily and then return to the level seen at the end of last year.
In 2027, private consumption will grow slightly faster than disposable income. The savings rate will remain higher than the long-term average.
Investment will grow strongly, driven in particular by public procurement, and private investment will also turn to growth, supported by increased investment by companies.
Residential investment will recover the slowest. The recovery in private investment will further strengthen next year, while public investment will no longer grow from its elevated level.
Exports grew at a moderate pace last year, which will also continue this year. This development is supported by the economic recovery in the key export markets, Germany and Sweden.
Next year growth will pick up slightly as global economic growth improves.
Inflation will rise temporarily due to rising energy prices. However, as inflation has been low, the outlook on its development remains moderate as a whole.
Employment will recover gradually, and the employment rate is expected to remain relatively high. Unemployment is also expected to remain high, since the number of people participating in the labour market keeps growing.
This is reflected in the labour force participation rate, that is the share of employed and unemployed persons in the population of the same age, which is at a historical high.
The public deficit is widening this year due to acquisitions in the defence sector, among others.
Next year, public finances are expected to be a bit more stable. The parliamentary agreement on stabilising public finances will increase the probability of the debt-to-GDP ratio starting to decline in the medium term.
Risks are evident, but there is also potential for improvement
The highest risks are related to the development of the global economy, especially the development of energy prices.
An escalating and prolonged crisis in the Middle East could push the economy into recession especially as uncertainty would increase at the same time. The potential for improvement is created by the resolution of conflicts, which together with cost competitiveness could clearly support the Finnish economy.
"Finland's economy has been slow to adapt to economic shocks for at least half a century. Recurring shocks increase the probability that subdued economic growth of the Finnish economy becomes prolonged. Periods of weak growth have not been overcome without substantial economic policy measures, whether in the 1970s, the 1990s or the 2010s," Heiskanen added.
- Finnish
- Economy
- Growth
- Slow
- Mideast conflict
Source: www.dailyfinland.fi
