2024 to be marked by a stagnant economy

In Finland, domestic demand faces a challenging landscape in 2024 primarily due to the widespread use of variable interest rates. Households are grappling with the repercussions of rising rates that are impacting their consumption patterns. The high interest rate environment is expected to ease, which along with falling inflation rates are expected to alleviate economic pressures and consequently bolster domestic demand. However, the overall demand will also be influenced by a weakened labour market, characterised by an uptick in unemployment rates. The marginal improvement in household consumption anticipated for 2024 is attributed to a blend of declining interest rates and favourable real wage growth. Despite the positive influence of easing interest rates and the boost from real wage growth, the concurrent rise in unemployment casts a shadow over the overall impact on household consumption.

The economic landscape in 2024 will also be affected by a government committed to constraining the fiscal deficit, as evident in its plans for expenditure cuts, tax adjustments, and broader reforms. However, against the backdrop of sluggish domestic and global activity, coupled with elevated interest rates, investments are poised to experience a further decline. While Finland is not immune to the ongoing global economic slowdown, there are optimistic expectations for improvements. The impact of external headwinds will continue, but a gradual recovery is expected in the latter part of 2024.

Fiscal responsibility is expected

The fiscal landscape for 2024 will be dominated by the government's concerted efforts to narrow the fiscal deficit through a combination of expenditure cuts, selective tax increases, and reforms. Despite these measures, the short-term consequence is a projected increase in the debt-to-GDP ratio. The commitment to fiscal prudence is expected to contribute to a partial narrowing of the fiscal deficit, reflecting the government's resolve to maintain financial stability.

Finland's current account balance is marked by a goods surplus but offset by a service deficit, driven in part by the Finnish penchant for international travel. Despite the persistent service deficit, a narrowing current account deficit is expected in 2024. This outlook is underpinned by expectations of a slightly improved goods surplus. Additionally, a somewhat improvement in primary income further contributes to the anticipated reduction of the current account deficit.

Upcoming Presidential and European Parliament elections

Parliamentary elections were held in 2023 so the next ones will not be held until 2027. 2024’s election agenda includes the Presidential election in January 2024 and the European Parliament elections in June. Although the Finnish President wields limited political power, these elections are still important to guage the Finnish sentiment. Alexander Stubb, a former prime minister of the current leading party, NCP, is leading the polls.

Key issues gripping the political scene include the complex situation on the eastern border with Russia, prompting discussions on security and international relations; this is especially the case as Finland recently joined NATO and the even more recent Defense Cooperation Agreement between Finland and the United States will give the American forces access to 15 installations and permission to store equipment and weapons on Finnish soil. Additionally, social security cuts recently voted in Parliament are a focal point, stirring debates on the balance between fiscal responsibility and social welfare.