Higher energy prices and uncertainty slow economic recovery

The Finnish economy is gradually recovering but is overshadowed by the crisis in the Middle East, higher energy prices and an uncertain economic outlook. Economic growth is boosting general government revenues, but the deficit remains wide according to the Ministry of Finance's economic forecast published on 16 June.

Gross domestic product (GDP) is projected to grow by 0.8 per cent in 2026, by 1.6 per cent in 2027 and by 1.7 per cent in 2028. Economic growth was stronger than expected early in the year, but part of this growth is explained by temporary factors. The economic outlook also involves a great deal of uncertainty. 

The forecast assumes, based on oil futures prices, that the crisis in the Middle East will subside towards the end of the year. However, oil prices will remain elevated, and central banks will raise interest rates this year. A prolonged crisis could further increase oil prices and interest rates, which would slow global and domestic economic growth significantly more than projected. 

“The economic outlook for the start of Finland’s next government term is still foggy. The outlook for public finances, however, is clear. Structural imbalances have to be corrected, which will require Finland to carryout extensive, fast-acting direct consolidations in the next parliamentary term,” said Director General Mikko Spolander. 

Rising energy prices drive inflation, curb purchasing power and inhibit exports

The Middle East crisis has raised oil prices and interest rates, which is dampening the outlook for global economic growth as well as growth in Finland’s export markets. Nevertheless, Finland’s exports are showing relatively strong growth despite the international operating environment. However, the impact of net exports on economic growth remains negative, because fighter jet purchases and other investments are driving imports up faster than exports.