Finland Beating Recession but Deficit Will Persist: Finance Ministry

Finland is emerging from recession, but the public economy is expected to remain in persistent deficit, according to the latest forecast of the Finnish Ministry of Finance.

Nevertheless, the analysis report said the country will avoid triggering the European Commission's Excessive Deficit Procedure (EDP), a mechanism designed to ensure that EU member states return to or maintain discipline in their governments' budgets, Xinhua news agency reported.

The report also projects the public sector deficit-to-GDP ratio at 3.7 per cent this year and 3.2 per cent in 2025. The Finnish government had committed to keeping the deficit ratio below 3.5 per cent. Under EU guidelines, the ratio should remain below 3.5 per cent this year and drop below 3 per cent by 2025.

In June, Finland avoided the EDP after the European Commission's forecast projected that the Finnish deficit ratio would soon drop below the 3 per cent threshold. The Commission is set to reassess Finland's situation in November.

In a statement on Monday, Minister of Finance Riikka Purra said that the government is planning to bring the deficit ratio down to 2.9 per cent next year, a target approved by the economic policy ministerial group on Monday.

Purra expressed confidence that the EU would not demand further austerity measures beyond those implemented earlier this year, but he emphasised that the final decision on the EDP remains with the EU.

The Ministry's latest economic outlook also noted that while Finland has exited recession, growth expectations for 2024 have been slightly revised downward. The forecast for 2025 has been adjusted upwards.

The Ministry anticipates a 0.2 per cent contraction for 2024, a 1.7 per cent growth in 2025 and a 1.5 per cent growth in 2026. In its June forecast, the Ministry anticipated zero growth for 2024 and a 1.5 per cent growth in 2025.

As global trade recovers, demand for Finnish exports is expected to increase. Additionally, declining domestic inflation and lower interest rates are projected to boost consumer demand and support the recovery of the construction sector.