Operating environment

Geopolitical tensions continued to increase in 2024. Uncertainty also impacted the euro area economy, which displayed significantly weaker growth than the global economy. Inflationary pressures abated, allowing monetary policy to be eased. However, difficulties with real estate transactions persisted in Finland and were also reflected in the financial markets.

Geopolitical tensions remained high in 2024

Geopolitical tensions increased global economic uncertainty

In 2024 the monetary and economic policy environment continued to be defined by geopolitical tensions.

The continuation of Russia’s illegal war in Ukraine caused significant levels of economic and political uncertainty, especially in the euro area but also globally. The situation in the Middle East also remained dangerous in many ways.

However, businesses and national economies have managed to adjust to the changed conditions, at least to some extent. In 2024, the prices of many raw materials, including energy, declined.

In the latter half of the year, international freight prices rose slightly but were nowhere near recent peak levels. Businesses are anticipating possible higher international tariffs and, partly because of this, have adjusted in advance their operations and the geographical distribution of their production.

Euro area economic growth was muted in 2024 despite lower inflation

Central banks lowered interest rates as inflation fell

Measures taken by central banks to curb inflation had the desired effect in 2024. As inflationary pressures eased, many central banks gradually moderated the degree of monetary policy restriction.

Contributing to the reduction in the euro area inflation rate was the fall in energy prices and the absence of rising food prices. Monetary policy was used to restrict aggregate demand and keep inflation expectations close to 2%. However, wages continued to rise rapidly, sustaining the increase in service prices.

Underlying inflation, which excludes food and energy prices, was higher than headline inflation in the euro area throughout 2024. The annual inflation rate for the whole of 2024 was 2.4% and the underlying inflation rate was 2.8%.

Euro area economic growth was slow in 2024

Euro area economic growth remained slow in 2024. Industrial output was weak because of high energy prices and subdued domestic demand.

Despite a robust labour market, the recovery of private consumption was also sluggish. The export outlook was hampered by geopolitical risks and by the weak performance of the global, and especially the Chinese, economy. 

Short-term market rates declined in the euro area in 2024

Euro area members’ government bond yield spreads against Germany contracted further in 2024

The European Central Bank (ECB) started lowering its key interest rates in June 2024. During the year, it lowered its principal policy rate – the deposit facility rate – four times, by a total of 1.0 percentage point. Short-term market rates, in particular, such as the Euribor rates, also declined substantially.

During the year, yield curves, which had long been sloping downwards in Germany and the United States, turned upwards. The biggest drop in interest rates was in short-term rates.

The yield on German 10-year sovereign bonds was at its highest, near 2.7%, at the end of May, but was at around 2.4% at the end of the year. Nevertheless, the yield at the end of 2024 was higher than a year earlier, when it was close to 2%.

For countries of the euro area, 10-year bond yield spreads against Germany continued to contract in 2024. France was an exception as its bond yield spread against Germany grew, due to the state of French public finances and political uncertainty.

France’s government bond yield against Germany rose from around 0.5% before the European Parliament elections in June to above 0.8% at the end of the year. Finland’s corresponding yield spread against Germany was stable during the year and even decreased towards year end, to near the 0.4% level, compared with around 0.5% at the end of 2023.

During 2024, the 12-month Euribor declined by 1 percentage point, closing the year at 2.5%. A revised Euribor calculation method was adopted during the year. At the same time, the Finnish OP Corporate Bank rejoined the Euribor Panel (in Finnish).

On secured money markets, developments took a new direction during the year when, as a result of quantitative tightening and the increased availability of government bonds, repo rates increased against the ECB deposit rate.

US and euro area share indices rose and gold price was at record high

On the equity markets, 2024 was especially good in the United States where technology shares, in particular, raised the annual returns on share indices.

The performance of euro area equity markets was more subdued, but the EURO STOXX Index rose by 8% during the year. For Nasdaq OMX Helsinki, the OMX Helsinki Index was 6% down at the end of the year.

The euro weakened against the US dollar by nearly 7% in 2024, with the exchange rate declining from 1.10 to 1.03.

The gold price continued its record rise throughout 2024. The euro price of gold rose by 35% during the year. The price peaked in November, at EUR 2,600 per ounce.

Finnish economy in recession in 2024

Private consumption contracted

Finland’s gross domestic product (GDP) for 2024 was down from the previous year. Although lower inflation and a cut in interest rates supported investment and consumption, no improvement in these was yet discernible.

Households’ purchasing power strengthened, as inflation slowed significantly and wages rose. Moreover, the cuts in interest rates rapidly reduced the interest burden of indebted households. However, private consumption contracted due to the low level of confidence and weak labour market.

Residential construction continued to decline substantially

The trend in private investment also remained unfavourable in Finland. Housing construction, in particular, was in considerable difficulty, but other investment also declined significantly.

Housing construction continued to contract substantially year on year, although the decline levelled off during 2024. Housing sales remained slow, and the number of unsold new dwellings was high.

The numbers of residential building permit applications and housing starts continued to fall by an exceptional amount, almost to the level of the 1990s recession.

Uncertainty in the global economy curbed export market growth and corporate investment in Finland

Uncertainty in the global economic outlook curbed growth in Finland’s export markets, and overall export performance was quite weak. Nevertheless, with imports decreasing due to weak domestic demand, exports exceeded imports, which supported growth in the economy.

The uncertainty over the global economic outlook also reduced corporate investment in Finland’s export markets. However, there were already signs of growth in exports during the summer and autumn.

General government finances were weak in 2024. The general government deficit in relation to GDP deepened despite the fiscal adjustment measures, as the increase in expenditure was greater than the increase in revenue.

Finland’s financial system challenged by cyberattacks and difficulties of real estate funds

Households and businesses reluctant to take out loans despite borrowing being eased by lower interest rates

Lower interest rates in 2024 reduced the loan servicing costs of Finnish businesses and households. In Finland, changes in market interest rates quickly pass through to lending rates, as Finnish borrowers favour loans that are tied to short-term interest rates.

Despite the lower interest rates, businesses and households remained cautious about making major investments and taking out loans.

Although housing sales picked up, some real estate funds ran into difficulties

The number of housing transactions was substantially lower than usual during the first half of 2024. The tightening of asset transfer tax for first-home transactions in early 2024 led to a decline in first-home purchases especially in early winter 2024. However, housing sales started to pick up gradually towards the end of the year.

Large real estate transactions, in particular, were still in a difficult situation, and the problems faced by real estate funds persisted. During 2024, many Finnish fund management companies put redemptions from their real estate funds on hold. The aim was to avoid having to sell their real estate investments in the difficult market situation.

Due to a gradual recovery of the housing market, the decline in housing prices levelled off in 2024. The prices of existing dwellings in housing companies had declined between June 2022 and the end of 2023 by around 10%, and by even more in the Helsinki metropolitan area. In 2024, the prices of these dwellings declined by only around 3% from the previous year, on average.

Availability of banking services was good despite cyberattacks

Geopolitical tensions were also reflected in financial services. Several influence campaigns were directed at Finnish banks and critical financial infrastructure in 2024.

Although the cyberattacks on banks were more prolonged and severe than usual, they caused only short-term disruptions to the availability of certain bank services.

Finland’s international communications networks were disrupted on several occasions in 2024. The damage was financial and did not disrupt the availability of banking services. Telecommunications operators’ ability to re-route services was good.