PUBLISHED June 28, 2026
According to the Bank of Finland’s June 2026 forecast, the Finnish economy is showing clear signs of recovery after years of underperformance — but the road ahead remains narrow and uncertain. Growth in the economy will gather pace, despite the difficult international environment. This year, economic growth in Finland will edge up to 0.7%, and will rise to 1.2% and 1.4% in 2027 and 2028, respectively. The turning point in the business cycle that forecasters have long been waiting for appears to have arrived — but the energy shock from the Iran war is taking the edge off what could have been a more confident rebound.
A Recovery Finally Taking Hold
Finland’s economic performance since the pandemic has been a persistent disappointment. Growth has repeatedly undershot projections since the pandemic: in 2025, real GDP is nearly 6.5 percent lower than projected in the October 2021 WEO. The invasion of Ukraine disrupted long-standing trade ties with Russia and raised economic uncertainty, monetary tightening sharply curtailed activity by weighing on housing, construction, and interest-sensitive consumption, and labor productivity has stagnated amid weak investment, declining firm dynamism, and skill shortages. Against that backdrop, the early 2026 data is genuinely encouraging. The economy expanded 0.9% in the first quarter of 2026. Private consumption started to pick up in the second half of 2025 and retail sales grew robustly in the first quarter of 2026.
Energy Shock: The Main Constraint
The recovery’s key limiting factor is the Middle East energy crisis. The suspension of oil and natural gas shipments in the Persian Gulf will raise fuel prices in Finland, in particular. The increase in fuel prices will be reflected with a delay in the prices of food and industrial goods, among other things. Finland’s relatively low reliance on fossil fuels provides some insulation compared to its European peers, but the pass-through through transport costs and imported goods is still material. Higher energy prices and rising inflation will moderate growth in the Finnish and euro area economies this year in particular.
Inflation: Rising But Contained
Inflation in Finland is being driven up this year by the energy crisis caused by the Middle East conflict. The rise in energy prices is being transmitted with a lag to other prices as well, but the energy price increase is expected to be temporary and the indirect effects to be moderate. As energy prices come down, the inflation rate will slow in 2027 to 1.6% from this year’s 2.4%. The OECD’s June outlook is slightly more pessimistic, projecting inflation reaching 2.6% in 2026 before easing — though both institutions agree on the basic trajectory: a temporary spike driven by energy, followed by a gradual return toward the ECB’s 2% target. Core inflation, which excludes food and energy, is expected to remain low, at around 1.4% in 2026.
Finland’s labour market remains one of the most challenging in the Nordic region. The labour market remained weak in 2025, and the unemployment rate rose to a high level. The unemployment rate for 2026 is forecast to be 10.2%, but the employment situation will improve as the business cycle improves. In 2027, the unemployment rate is projected to fall to 9.7% and further to 9.2% in 2028. The declining unemployment rate in the first quarter of 2026 — from 10.6% to 10.4% — was driven partly by a contraction in the labour force rather than purely by job creation, which tempers the positive signal somewhat. Nonetheless, the direction of travel is improving.
Finland’s labour market remains one of the most challenging in the Nordic region. The labour market remained weak in 2025, and the unemployment rate rose to a high level. The unemployment rate for 2026 is forecast to be 10.2%, but the employment situation will improve as the business cycle improves. In 2027, the unemployment rate is projected to fall to 9.7% and further to 9.2% in 2028. The declining unemployment rate in the first quarter of 2026 — from 10.6% to 10.4% — was driven partly by a contraction in the labour force rather than purely by job creation, which tempers the positive signal somewhat. Nonetheless, the direction of travel is improving.
One of the brightest spots in Finland’s outlook is the investment pipeline. Investment is set to rise in 2026, driven by a significant boost in machinery and equipment spending — including the arrival of the first batch of Finland’s 64 F-35 fighter jets, with deliveries continuing until 2030. Data centre construction is also surging, further supporting equipment and infrastructure investment. Finland’s competitive electricity prices — among the lowest in Europe thanks to nuclear power and growing renewable capacity — are a major draw for data centre operators and energy-intensive green industries. This structural advantage is increasingly shaping the country’s medium-term growth story beyond the cyclical recovery.
Finland’s fiscal position remains one of the most difficult in the euro area. The deficit is forecast to widen from 3.4% of GDP in 2025 to 4.5% in 2026, and remain high at 4.6% in 2027. Public debt is projected to continue rising, reaching 93.1% of GDP by 2027. The widening deficit reflects several pressures converging at once: large F-35 delivery payments, rising interest costs on an elevated debt stock, higher wages across the public sector under recent multi-year agreements, and the limited room for manoeuvre given the need to maintain social stability during the recovery. Expenditure adjustment measures in central and local government will continue, but concurrent tax cuts and subdued economic growth will moderate the extent to which the budgetary position is strengthened.
Despite the near-term challenges, Finland’s structural position for the second half of this decade is more promising than the headline numbers suggest. Finland’s medium-term outlook is supported by competitive electricity prices and growing capabilities in green technologies and defence manufacturing. As the energy transition accelerates across Europe, Finland’s combination of abundant low-carbon electricity, an educated workforce, and a strong industrial base in clean technology positions it well to attract investment and grow high-value exports in sectors that will define the next decade of European economic geography.
One of the brightest spots in Finland’s outlook is the investment pipeline. Investment is set to rise in 2026, driven by a significant boost in machinery and equipment spending — including the arrival of the first batch of Finland’s 64 F-35 fighter jets, with deliveries continuing until 2030. Data centre construction is also surging, further supporting equipment and infrastructure investment. Finland’s competitive electricity prices — among the lowest in Europe thanks to nuclear power and growing renewable capacity — are a major draw for data centre operators and energy-intensive green industries. This structural advantage is increasingly shaping the country’s medium-term growth story beyond the cyclical recovery.
Finland’s fiscal position remains one of the most difficult in the euro area. The deficit is forecast to widen from 3.4% of GDP in 2025 to 4.5% in 2026, and remain high at 4.6% in 2027. Public debt is projected to continue rising, reaching 93.1% of GDP by 2027. The widening deficit reflects several pressures converging at once: large F-35 delivery payments, rising interest costs on an elevated debt stock, higher wages across the public sector under recent multi-year agreements, and the limited room for manoeuvre given the need to maintain social stability during the recovery. Expenditure adjustment measures in central and local government will continue, but concurrent tax cuts and subdued economic growth will moderate the extent to which the budgetary position is strengthened.
Despite the near-term challenges, Finland’s structural position for the second half of this decade is more promising than the headline numbers suggest. Finland’s medium-term outlook is supported by competitive electricity prices and growing capabilities in green technologies and defence manufacturing. As the energy transition accelerates across Europe, Finland’s combination of abundant low-carbon electricity, an educated workforce, and a strong industrial base in clean technology positions it well to attract investment and grow high-value exports in sectors that will define the next decade of European economic geography.
