Finland’s economy is facing a crisis few are talking about. The country has spent two years stuck in stagnation, and the latest figures show no clear path to recovery.
While much of Europe is moving forward, Finland’s economy barely grew in the last quarter of 2024, and is now the worst-performing economy in the region.
Rising unemployment, weak consumer confidence, and mounting debt suggest that 2025 might not bring the relief many are hoping for.
A recession that refuses to go away
According to the Bank of Finland’s December 2024 report, the country’s economy shrank by 0.5% for the year, marking its second consecutive year of contraction.
This follows a dismal 2023, where GDP fell by 1.2%, and a series of weak quarters dating back to late 2022.
The country’s exports, which are its main economic engine, have been hit hard by weak demand from Germany and Sweden, its two largest trading partners.
Global geopolitical conflicts and supply chain disruptions have taken a toll on the country’s main revenue sources.
Even as some positive signs emerge, growth remains fragile. In the fourth quarter of 2024, GDP expanded by just 0.1%, after 0.3% growth in the previous quarter.
This is far below what’s needed for a meaningful recovery. While OP Group predicts a 1.7% expansion in 2025, the Bank of Finland has cut its forecast to just 0.8%, warning that domestic demand remains weak and the labor market is still deteriorating.
Unemployment is the real problem
The biggest red flag in Finland’s economy is the labor market. The unemployment rate rose to 8.3% in 2024 and is expected to climb further to 8.7% in 2025.
This means Finland will likely have the highest unemployment rate in the Eurozone next year.
The problem isn’t just job losses, but the lack of job creation. Businesses are hesitant to invest, and hiring has slowed to a crawl.
The construction sector used to be the biggest employer in the country and it has been hit particularly hard.
Housing construction remains at historically low levels, with developers hesitant to start new projects due to oversupply in some areas and weak demand in others.
Meanwhile, public sector hiring, which has propped up employment in recent years, is expected to stagnate as the government pushes fiscal tightening measures.
With labor market reforms and social benefit cuts planned for 2025, many economists fear the situation could get worse before it gets better.
Lower-income households will feel the brunt of these changes, adding even more pressure to an already fragile economy.
Public debt is heading in the wrong direction
Finland’s budget deficit is widening, and public debt is growing at an alarming rate. The general government deficit rose to 4% of GDP in 2024, and the debt-to-GDP ratio is expected to reach 87% by 2027.
Although some of this is due to temporary spending, such as defense investments and support measures during the recession, there are still underlying problems here.
Finland has been running budget deficits almost every year since 2009. With an aging population and increasing demands on public services, the country’s fiscal position looks extremely risky.
To address this, the government is rolling out a massive €9 billion fiscal adjustment plan, including spending cuts and tax hikes.
While these may help stabilize debt levels in the long run, they also risk slowing economic recovery.
Austerity measures could weaken consumer spending and delay investment, making it harder for Finland to break out of its low-growth cycle.
The housing market tells a different story
Despite the broader economic struggles, Finland’s housing market is showing signs of life.
According to Pellervo Economic Research (PTT), apartment prices are expected to rise by 1.5% in 2025 after a sharp drop in 2024.
Falling interest rates and a gradual increase in household incomes are making home purchases slightly more attractive.
However, not all regions will benefit equally. Prices in Helsinki, Finland’s largest market, will only rise modestly due to an oversupply of housing.
In contrast, cities like Espoo, Kauniainen, and Oulu are expected to see stronger price growth.
Rental prices are also on the rise, with PTT forecasting a 1.6% increase in private rental costs, while government-supported housing will see even steeper hikes.
However, this situation may point towards growing inequality rather than economic recovery, depending on how you look at it.
Wealthier areas are bouncing back faster, while more vulnerable regions are still struggling.
Moreover, rising housing costs could put additional pressure on lower-income households, which are already dealing with high unemployment and reduced social benefits.
Is Finland heading for a lost decade?
While 2025 is expected to bring some economic relief, the bigger question is whether Finland can break free from its cycle of stagnation.
The country’s long-term challenges, such as low productivity growth, an aging workforce, and weak business investment, all remain unresolved.
Unlike some of its Nordic neighbours, Finland has struggled to attract foreign investment or develop high-growth industries outside of its traditional sectors.
The country’s heavy reliance on exports makes it vulnerable to external shocks, while domestic demand remains too weak to drive a sustained recovery on its own.
For Finland to truly recover, it needs more than just lower interest rates and a short-term boost in demand.
The government must find ways to stimulate investment, improve labour market flexibility, and support innovation.
This is imperative as Finland risks entering a prolonged period of slow growth and high unemployment, a “lost decade” that could leave its economy permanently weaker.
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