Rising energy prices slow economic growth

Economic recovery in Finland will be further delayed as a result of the crisis in the Middle East. The general government deficit will widen and remain large according to the Economic Forecast published by the Ministry of Finance on 30 April.

Economic growth will be weaker than expected this year. Growth in gross domestic product (GDP) will be only 0.6 per cent in 2026, as the crisis in the Middle East and rising oil prices in particular delay economic recovery. However, growth is expected to pick up towards the end of the of the outlook period as oil prices drop and the economy recovers from the downturn. In 2027 and 2028, GDP is expected to grow by 1.7 per cent. 

The forecast assumes that the crisis in the Middle East will be short-lived, will not have any major multiplier effects on commodity prices and will not result in major fiscal tightening in the euro area. Once the crisis has passed, the economy will start recovering quickly. The forecast is accompanied by an alternative scenario presenting a less favourable outlook based on a prolonged crisis. 

“When it comes to the economic situation, the only thing we know for sure is that the crisis in the Middle East is increasing instability and uncertainty, hindering economic growth and driving inflation in Finland this year. We must hope that the crisis is resolved quickly and with little damage. The crisis is adding to the challenges already facing Finland’s public finances,” said Director General Mikko Spolander. 

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

Oil prices have risen significantly, which is driving inflation. However, the increase in consumer prices will remain at around two per cent, because increases in prices for commodities other than energy have remained moderate. It is assumed that the jump in oil prices will be followed by a rapid decline, but that prices will remain elevated in 2027 compared to the baseline. Inflation will also slow next year. 

Higher energy prices and weak employment are undermining household purchasing power, though pay rises and tax cuts are buoying incomes. Uncertainty about the economic outlook and the adjustment of general government finances are making households more cautious, which is reflected in postponed consumption and higher savings rates. Consumption will pick up in 2027 as purchasing power improves and savings rates decline. 

Higher energy prices are also a drag on the growth of Finland’s export markets, which will weaken Finland’s exports in 2026. Though exports will recover later, the net effect of foreign trade on economic growth will remain slightly negative as investments drive import growth faster than exports. 

Energy, technology and defence projects to boost investments 

Investments will grow especially thanks to defence procurements and the energy and technology transition. These will particularly drive investments in machinery and equipment but also construction. At the same time, however, the recovery of housing construction will be further delayed as a result of sluggish demand.  

Delayed employment growth 

In the labour market, the supply of labour has been boosted by employment measures and immigration. The number of employed persons has remained stable, but unemployment has exceeded 10 per cent. The employment rate will only start rising and the unemployment rate declining as economic growth picks up in 2027. 

Slow growth and rising spending to maintain wide public deficits

A weaker economy will undermine general government finances, widen deficits and accelerate general government indebtedness.  

The general government deficit was 3.4 per cent of GDP last year. This year, the deficit will reach 4.6 per cent, as economic growth is suppressed by the crisis in the Middle East, Finland’s fighter jet purchases begin to be entered as expenditure, and the rate of adjustment slows. Rapid growth of spending and slow economic growth will cement the deficit at 4.6 per cent of GDP until 2029, from where it will improve slightly in 2030. Rapidly growing defence and interest expenditure and a stagnant economy will keep the deficit-to-GDP ratio at 4.4 per cent in 2030. The combined central government and local government deficit will remain around 5.5 per cent of GDP for the entire outlook period.

The foreseeable rate of economic growth will not be enough to halt the growth of the debt ratio if the debt-accumulating deficit remains this wide. The debt-to-GDP ratio exceeded 88 per cent in 2025, and it will exceed 91 per cent this year. The debt ratio will continue to grow throughout the outlook period and will exceed 99 per cent in 2030. 

Inquiries: 
Mikko Spolander, Director General, tel. +358 295 530 006, mikko.spolander(at)gov.fi 
Janne Huovari, Senior Ministerial Advisor, tel. +358 295 530 171, janne.huovari(at)gov.fi (real economy) 
Jenni Pääkkönen, Senior Ministerial Adviser, tel. +358 295 530 131, tel. jenni.paakkonen(at)gov.fi (general government finances)