MuniFin’s economic forecast Q1/2024: Falling interest rates expected to spur Finnish economic recovery

Finland’s GDP growth was weaker than expected last year, and 2024 has also started sluggishly, marked by industrial action. Therefore, MuniFin has slightly lowered its GDP forecast for the current year. However, consumption, investment, and exports are expected to recover next year.

Timo Vesala, Chief Economist at MuniFin, assesses that economic growth has been subdued for a long time, but the seeds of growth are beginning to accumulate.

“Monetary policy tightening has had a significantly greater impact on the Finnish economy than on peer countries. For Finland, it would be crucial for interest rates to start turning clearly downwards. Lower interest rates would support consumer confidence and help to kick-start the frozen housing market,” says Vesala.

In recent months, expectations of monetary policy easing have shifted somewhat further, but interest rates are expected to start falling this summer. Lower financing costs would also boost industry investments, and the recovery of the international economy will eventually provide tailwinds for Finnish exports.

Unemployment forecast weakened

MuniFin has weakened its forecast for unemployment. The average unemployment rate is expected to rise to 8.0% this year but fall to 7.5% next year.

“Compared to the weakness of GDP growth, employment has held up surprisingly well, but hours worked in the economy have already started to decline, which may indicate a broader deterioration in the labour market” says Vesala.

MuniFin has also lowered its GDP forecast for 2024 by 0.2 percentage points.

“Our view of this year’s economic trends in Finland has not changed significantly: the beginning of the year is still challenging, but the economic recovery will strengthen towards the end of the year. However, 2024 started from a clearly lower GDP level than we previously estimated, and the tense labour market situation has deepened the economic difficulties in the beginning of the year. Therefore, we have lowered our growth forecast for the current year to -0.5%. Next year, we expect a broad-based recovery in consumption, investment, and exports. We keep our GDP forecast for 2025 unchanged at 2.0%,” Vesala explains the change.

Vesala points out that the economy may grow faster than forecast next year if all the pieces of recovery fall into place already at the end of this year. However, there are also downside risks to the economy, particularly regarding the employment outlook.

Further information

Timo Vesala, Chief Economist
tel. +358 50 5320 702