Finland's economy will emerge from recession later this year before achieving a modest level of economic growth next year, said the Ministry of Finance on Thursday.
The ministry's latest economic forecast suggests that Finland's gross domestic product (GDP) will grow by 1.6 percent in 2025, according to the ministry's estimates, compared with zero growth this year.
The report noted that a drop in interest rates and a slowdown in inflation will boost consumption as well as investments, leading to the bump in GDP.
Although the recession will begin to ease this year, fiscal consolidation will prove more difficult than previously anticipated.
"Fiscal problems are more long-standing and the deficit is not going away. In the forecast period, the debt ratio growth will slow down and may even reverse, but this seems to be temporary," the ministry's head of Fiscal Forecasting Jenni Pääkkönen said at a press conference.
The ministry expects Finland's budget deficit will widen further this year, to above 3.5 percent of GDP. By the end of the forecast period in 2028, the deficit is projected to be below two percent of GDP.
The government's aim is to rein in public debt and bring the deficit down to no more than one percent of GDP by 2027.
Under the EU's fiscal rules, member states' budget deficits should not exceed three percent of GDP.
"The figures show that the buffer between these rules and the government's own targets is very thin. There would be no room for any negative surprises in the real economy or public finance side," Pääkkönen said.
"However, without the additional measures taken by the government in the framework agreement, the deficit would remain above three percent of GDP for several years, the debt would grow rapidly and the debt ratio would be close to 90 percent in 2028," the ministry stated in its assessment.
Pääkkönen also pointed out that not all the measures included in the government programme, but where are not yet implemented, are included in the forecast. When they are brought in, they could ease the situation.
"In particular, the growth measures outlined by the government can have a positive impact on the real economy and public finances if they get off the ground and have the desired effect, Pääkkönen said.
Year of zero growth
As the economic picture has turned gloomier in recent months, the Finance Ministry has downgraded its previous growth forecasts.
The recession started earlier than expected and has hit harder than previously estimated.
However, there are promising signs on the horizon. Domestic demand will be boosted by falling inflation and interest rates, as well as rising household incomes.
Investment is also expected to pick up next year as interest rates fall, the construction sector begins to recover and defence-related investment increases.
"Finland is facing a very large number of investment plans. While a large part of them will not materialise, the number of plans is so large that investment is likely to pick up towards the end of the decade," Janne Huovari, the ministry's head of Macro Forecasting, said at the press conference.
At the same time, however, the government's adjustment measures will reduce demand, raise prices and weaken economic growth by about 0.5 percentage points in 2025-26.
"Austerity measures and the increase in VAT will partly weaken the upswing. However, their impact will not be so large that private consumption and household purchasing power will not increase," Huovari said.
The All Points North podcast assessed the government's latest round of austerity measures. Listen to the episode via this embedded player, on Yle Areena, via Apple, Spotify or wherever you get your podcasts.
Users with an Yle ID can leave comments on our news stories. You can create your Yle ID via this link. Our guidelines on commenting and moderation are explained here.