Middle East crisis accelerates inflation to 2.4 percent this year, forecasts the Bank of Finland
The Bank of Finland forecasts the economy will grow by 0.7 percent this year. That figure has risen slightly from March, when the forecast was 0.6 percent.
Aliisa Uusitalo / STT
Today 11:16
The Bank of Finland forecasts the economy will grow by 0.7 percent this year. Next year, growth is expected to accelerate to 1.2 percent and to 1.4 percent by 2028.
The central bank has raised its growth forecast slightly from March, when it predicted the economy would grow by 0.6 percent this year. The forecasts for 2027 and 2028, however, have fallen slightly from earlier.
Inflation is expected to rise to 2.4 percent in Finland this year due to rising energy prices. In March, the central bank forecast inflation would rise to 1.9 percent this year.
However, the faster inflation is expected to be short-lived, and in 2027 it is forecast to slow to 1.6 percent. In April, inflation in Finland was 1.5 percent.
According to Juuso Vanhala, head of forecasting at the Bank of Finland, a turn for the better is already visible in the Finnish economy. Private consumption, which has long been sluggish, has picked up during the start of the year, and exports and investments are also growing.
– The recovery is uncertain, however, and the Middle East conflict in particular is hurting growth, Vanhala says in a press release.
Oil prices have been elevated since the Middle East conflict began at the end of February and Iran closed the strategically important Strait of Hormuz for oil shipments.
Unemployment situation recovers slowly
However, no rapid relief is in sight for Finland’s difficult unemployment situation. The Bank of Finland estimates that unemployment will decrease slowly and improve steadily in 2026–2028 as the economic cycle improves.
Unemployment rate in Finland was 10.6 percent in April. Finland’s unemployment rate has recently been among the highest in EU countries.
Public finances will remain clearly in deficit, according to the Bank of Finland. This year, public debt as a share of GDP is estimated to grow to almost 92 percent and further to just under 97 percent by 2028.
According to the central bank, there are still large uncertainties related to the economic forecast due to the situation in the Middle East. The fluctuating trade policy of the United States also creates uncertainty. If the geopolitical situation turns for the better quickly, however, economic growth could surprise on the upside, according to the Bank of Finland.
The raging war in the Middle East is currently affecting inflation forecasts across Europe. The European Central Bank raised its key interest rate on Thursday due to accelerating inflation.
The ECB's deposit rate is now 2.25 percent, up from the previous two percent. At the same time, the central bank raised its inflation forecast for the euro area to 3.0 percent from the previous 2.6 percent.
