Finland’s economy grows, but consumers remain unconvinced

Finland’s economy has returned to growth, but households have yet to feel the improvement in their finances, ERR reports. More than 10 percent of the working-age population remains unemployed, while the housing market has yet to recover.

Prime Minister Petteri Orpo said last week at the summer convention of his National Coalition Party that Finland’s economic development showed the government was pursuing the right policies.

“A year ago, Suomen Kuvalehti called me a lone optimist because I was the only one who saw and believed there were positive signs in the economy. Now Finland’s economic growth is among the fastest in Europe. In the first quarter, it was the fastest among European Union countries,” Orpo said.

Many Finns have been surprised by politicians’ reports of progress because they do not see it in their wallets. A recent financial security survey by Danske Bank found that 38 percent of Finns had no savings set aside for difficult times.

Kaisa Kivipelto, an economist at the bank, attributed the situation to inflation, higher loan interest rates and unemployment. Cuts to social benefits have also reduced people’s savings. She said household circumstances varied considerably depending on whether people received a salary each month or relied on unemployment or other benefits.

Studies also indicate that the government’s measures have sharply increased the number of people on low incomes. An analysis by the Kalevi Sorsa Foundation found that the number of people with low incomes was now 100,000 higher than it would have been without the government’s spending cuts.

The government has cut benefits, changed taxes and introduced other measures to slow the increase in the country’s debt burden. According to the foundation’s study, the annual income of the lowest-income people has fallen by nearly 1,000 euros as a result of the cuts, while the incomes of the richest 5 percent have risen by 2,000 euros.

Statistics nevertheless show that Finland’s economy has grown since 2024. Kivipelto said employers would begin hiring additional workers once they became confident in the growth outlook. That could take six months or even a year, she told Helsingin Sanomat.

Wages have already started to rise. According to Finland’s national public broadcaster Yle, wages have increased by 19 percent compared with 2020.

If economic growth becomes firmly established, consumer confidence should improve and people may again be willing to take out housing loans. Analysts say that will still take time.

Finland’s construction sector has already begun to recover, driven by data centre construction. New housing construction, however, remains at a historically low level.

Supply currently exceeds demand in the housing market, keeping prices low. During the period of zero interest rates, almost twice as many homes were built as needed. New construction has now fallen by one-third, and a shortage of homes will eventually emerge, pushing prices higher, said Atte Jortikka, an analyst at the investment community Inderes.

“We are now seeing economic growth pick up. At some point, housing transactions and prices will also begin to rise,” Jortikka said.

Lasse Corin, chief economist at Aktia Bank, said a recovery in the housing market currently depended less on interest rates than on consumer confidence, which remained fairly low. He said, however, that Finland’s economic growth could now be viewed with considerable confidence.

Editor: Mait Otsso