PUBLISHED June 28, 2026
A Fragile and Uneven Recovery
After stagnating in 2025, Finland faces a fragile and uneven recovery in 2026, constrained by higher energy prices and global volatility owing to the evolving conflict in the Middle East. Elevated energy prices are eroding household purchasing power, raising production costs and weakening confidence, delaying the recovery in consumption. GDP growth is projected to remain modest at 0.8% in 2026 before strengthening to 1.2% in 2027 as energy pressures ease, external demand improves and lower interest rates support activity. Inflation is expected to rise temporarily to around 2.6% in 2026, while unemployment remains above 10%.
External Shocks Are Weighing on Domestic Demand
A subdued recovery is underway. Private consumption started to pick up in the second half of 2025 and retail sales grew robustly in the first quarter of 2026. Residential construction remained depressed following the sharp correction in 2023–24, although the pace of decline slowed. The economy expanded 0.9% in the first quarter of 2026. However, other indicators, including low consumer confidence and shrinking employment, suggest that growth is not yet broad based. Pushed up by rising energy prices, harmonised headline inflation rose to 2.4% in April 2026.
Russia, Germany, and the Middle East: A Triple Squeeze
International developments remain a major drag on activity. Russia’s war of aggression against Ukraine led to the closure of the Finnish-Russian border, the loss of bilateral trade and a decline in tourism from Asia due to airspace restrictions. Weak growth in Germany, Finland’s most important export destination for machinery, metals and intermediate goods, has weighed heavily on industrial exports. Since mid-2025, Finland has also faced higher tariffs in the United States on non-exempt goods. As a net energy importer with energy-intensive industries, Finland is exposed to the evolving conflict in the Middle East via global energy prices, as well as knock-on effects on globally traded industrial products such as fertilisers and industrial gases.
This vulnerability is partly mitigated by the high share of non-fossil fuel electricity generation, which accounts for around 95% of total electricity output. While Finland cannot escape the global price effects of the energy shock, its domestic electricity mix — dominated by nuclear and renewables — provides meaningful insulation compared to countries more dependent on imported fossil fuels for power generation, even as transport fuel and industrial gas prices remain exposed to global market conditions.
This vulnerability is partly mitigated by the high share of non-fossil fuel electricity generation, which accounts for around 95% of total electricity output. While Finland cannot escape the global price effects of the energy shock, its domestic electricity mix — dominated by nuclear and renewables — provides meaningful insulation compared to countries more dependent on imported fossil fuels for power generation, even as transport fuel and industrial gas prices remain exposed to global market conditions.
Monetary conditions are gradually easing as ECB policy rate cuts feed through to financing costs, although transmission remains incomplete as high household indebtedness and cautious bank lending continue to weigh on credit demand and spending. Fiscal policy remains contractionary over the projection period, reducing the structural primary deficit by around 0.2 percentage points of GDP from 2025 to 2027. Gross public debt continues to rise, approaching 100% of GDP by 2027, placing a premium on a credible medium-term fiscal framework. Notably, no fiscal measures have been taken to cushion the energy price shock, even as defence spending continues to rise toward at least 3% of GDP by the end of the decade.
GDP growth is projected to strengthen from 0.8% in 2026 to 1.2% in 2027, as easing monetary conditions, recovering investment and stabilising housing construction more than offset the drag from a tighter fiscal stance. Investment is expected to be driven by defence, energy and green-industrial projects, underpinned by cheap and abundant low-emissions electricity. Private consumption is expected to be broadly flat in 2026 despite falling real disposable incomes, with households reducing savings, before strengthening by 1% in 2027 as real incomes recover and employment growth resumes. Risks are tilted to the downside, mainly from persistently high energy prices and jet fuel shortages should the Middle East conflict be prolonged.
Maintaining a credible and gradual fiscal consolidation path is essential to stabilise public debt in a volatile international environment, while allowing automatic stabilisers to operate if the recovery weakens. Faster permitting and grid investment, alongside crowding in private investment to scale innovation in clean energy and green industrial projects, would accelerate electrification and improve energy security. Productivity can be further boosted by easing skills shortages through higher-education and foreign-talent reforms, and by fostering private investment in digitalisation and defence projects — the combination the OECD sees as essential to lifting Finland’s medium-term growth potential.
Monetary conditions are gradually easing as ECB policy rate cuts feed through to financing costs, although transmission remains incomplete as high household indebtedness and cautious bank lending continue to weigh on credit demand and spending. Fiscal policy remains contractionary over the projection period, reducing the structural primary deficit by around 0.2 percentage points of GDP from 2025 to 2027. Gross public debt continues to rise, approaching 100% of GDP by 2027, placing a premium on a credible medium-term fiscal framework. Notably, no fiscal measures have been taken to cushion the energy price shock, even as defence spending continues to rise toward at least 3% of GDP by the end of the decade.
GDP growth is projected to strengthen from 0.8% in 2026 to 1.2% in 2027, as easing monetary conditions, recovering investment and stabilising housing construction more than offset the drag from a tighter fiscal stance. Investment is expected to be driven by defence, energy and green-industrial projects, underpinned by cheap and abundant low-emissions electricity. Private consumption is expected to be broadly flat in 2026 despite falling real disposable incomes, with households reducing savings, before strengthening by 1% in 2027 as real incomes recover and employment growth resumes. Risks are tilted to the downside, mainly from persistently high energy prices and jet fuel shortages should the Middle East conflict be prolonged.
Maintaining a credible and gradual fiscal consolidation path is essential to stabilise public debt in a volatile international environment, while allowing automatic stabilisers to operate if the recovery weakens. Faster permitting and grid investment, alongside crowding in private investment to scale innovation in clean energy and green industrial projects, would accelerate electrification and improve energy security. Productivity can be further boosted by easing skills shortages through higher-education and foreign-talent reforms, and by fostering private investment in digitalisation and defence projects — the combination the OECD sees as essential to lifting Finland’s medium-term growth potential.
