Source: SRV’s January-March 2025 Interim Report published on 30 April 2025
According to the Bank of Finland's March forecast, the slow recovery of the Finnish economy from the recession is under way. In 2025, the economy is expected to grow by 0.8 per cent, with the momentum picking up to 1.8 per cent in 2026. However, geopolitical risks and global economic uncertainty weaken the economic outlook and predictability. Consumer confidence and real incomes remain weak, but moderate inflation and declining interest rates have improved the purchasing power of wage earners. Uncertainty will probably limit the expected growth in private consumption and investments. The unemployment rate is forecast to increase slightly in 2025, but the employment situation will improve in the following year. The substantial import tariffs that the United States imposed on almost all of the world’s countries in April hinder the development of Finnish exports, but service exports are expected to remain strong. Defence spending will rise in the next few years and the public debt ratio will keep rising in spite of adjustment measures (source: Bank of Finland).
In its March forecast, the European Central Bank (ECB) estimated that the eurozone economy will grow by 0.9 per cent, but this is overshadowed by the uncertain trade policy situation. Inflation has become more moderate, moving closer to the target level, and the ECB has continued to cut interest rates. At its April meeting, its Governing Council lowered the key interest rate to 2.25 per cent. This rate is crucial to the market, and further cuts are expected in 2025 (source: Bank of Finland).
The balance figure for the consumer confidence indicator was -8.2 in March. Consumer confidence remains low as the long-term average for the indicator is -2.6. Consumers’ expectations for the Finnish economy and their own finances remained muted. They were not planning to spend much money on consumption and their intentions to buy a home were lower than normal. In addition, the outlook for unemployment was weak and they felt that losing their job posed a high threat (source: Statistics Finland).
This year, construction is expected to rebound from its all-time low with growth of 4 per cent. The pace of growth is expected to accelerate in 2026. Sales of old residential units have picked up, but sales of new units remain low. Due to the slowly shrinking inventories of finished residential units, many new housing projects are being kept on hold. The amount of state-subsidized housing construction will decline in the coming years. It is estimated that 20,000 units will be started in 2025 and 24,000 in 2026. The number of housing starts in the years ahead will fall clearly short of the need for homes; according to a new study by VTT, 31,000–36,000 homes will be needed per year over the next twenty years. Business construction, which has shored up construction activity, will swing to growth this year. Many large-scale projects are under way in public construction, and industrial construction is boosted by data and security projects. However, the investment environment remains uncertain, and there is still a risk that projects will be postponed. On the other hand, there are many candidate projects and things may pick up as financing conditions become more favourable and foreign investors start taking a renewed interest in Finland (source: Confederation of Finnish Construction Industries RT).
Real estate transactions remained at a historical low, with only EUR 620 million worth of transactions being concluded during the first quarter. More than half of these transactions were made by foreign investors, and 74 per cent focused on the Helsinki metropolitan area and its surrounding municipalities. Higher return requirements combined with falling market rates of interest will create a foundation for the gradual normalisation of the transaction market (source: KTI).
SRV’s view of the market situation and its impact on the company’s operations is that the market situation for private-sector projects will remain challenging in the near future. The geopolitical situation and trade wars fuel uncertainty concerning economic development. The weaker US dollar and the potential slowdown in economic growth due to tariffs are likely to reduce inflationary pressures in the eurozone, which in turn would probably result in greater-than-expected interest rate cuts. Decreasing interest rates improve the preconditions for starting up projects in all segments, but the yield requirements of investors are still relatively high in the case of both housing and various kinds of business premises projects. In addition, risks related to the development of Finland's GDP weaken willingness to invest in the country. In addition to low demand, the preconditions for starting up new residential projects are also still weakened by the large supply of new and newish homes on the market. Consumer demand for housing is recovering gradually, but remains low. On the other hand, construction costs have slightly decreased, which is having a positive effect on start-up preconditions. In business premises construction, public sector demand supports volumes. The limited demand from real estate investors is largely weighted towards existing properties rather than development projects.
SRV’s January-March 2025 Interim Report published on 30 April 2025