Geopolitical and trade policy tensions further weakened the global economic outlook in 2025
In 2025, 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. Tensions in the Middle East eased towards the end of the year but remained elevated.
Businesses and national economies nevertheless managed to adjust to the changed conditions to some extent. Energy prices continued to decline. In 2025, the full impact of the tariff increases was not yet seen, as companies are gradually adjusting their prices and supply chains.
The conclusion of a trade agreement between the European Union and the United States contributed to the partial easing of trade policy uncertainty. On the other hand, the increasing efforts of China’s heavily subsidised industrial sector to seek markets abroad and China’s actions to limit the availability of rare earth metals weakened the position of European companies.
Monetary policy was eased in the euro area in 2025
Inflation in the euro area slowed to an average of 2.1% in 2025, allowing the key ECB interest rates to be cut. The economy in the euro area grew slightly, although by a lesser amount than expected.
Central banks mostly continued to cut interest rates
Changes made by central banks in their key interest rates continued to be transmitted to national economies in 2025. As inflationary pressures eased, many central banks lowered key interest rates closer to neutral levels.
The decline in energy prices, in particular, contributed to the slowing of inflation in the euro area. With the inflation outlook remaining close to 2%, the degree of monetary policy restriction could be moderated. Wage growth also slowed, although services inflation stayed high to the end of the year.
The euro area’s underlying inflation, which excludes food and energy prices, was higher than headline inflation throughout 2025, mainly as a result of the steep rise in services prices. The euro area inflation rate for 2025 as a whole was 2.1% and the underlying inflation rate was 2.4%.
Economic growth in the euro area withstood the tariff turmoil better than expected
Economic growth in the euro area withstood the 2025 tariff increases better than expected but was low nevertheless. Industrial output picked up slightly, with the service industry continuing to drive growth.
Employment growth in the euro area slowed significantly, but the unemployment rate remained low nevertheless. The export outlook was hampered by geopolitical tensions, tariff increases, insufficient competitiveness in the euro area and weak growth in the international economy, particularly China.
Euro area financial markets recovered in 2025
In 2025, yield curves in the euro area financial markets became steeper, indicating that yields on long-term government bonds rose faster than on short-term bonds, and equities generally had a strong year. The euro appreciated against the dollar, and the gold price reached a new record.
Yield spreads of euro area government bonds against Germany narrowed
The ECB continued to lower interest rates during the first half of 2025. It lowered its principal policy interest rate – the deposit facility rate – four times, by a total of 1.0 percentage point. Short-term market rates decreased as the policy rate cuts were made.
In contrast, long-term interest rates, such as government bond yields in the euro area, rose during the year as growth prospects improved slightly, inflation rates stabilised and borrowing increased. Consequently, yield curves became steeper. For example, the yield on German 10-year sovereign bonds rose by half a percentage point during the year. At the end of the year, the yield was nearly 2.9%, while the corresponding figure a year earlier was 2.4%.
The yield spreads of other euro area countries against Germany narrowed during 2025. Germany’s yield level rose in relative terms by more than that of other countries. This is attributable especially to Germany’s political decision to increase the country’s borrowing for defence investments, among other things.
France’s yield spread against Germany remained at a higher level than previously throughout the year, at around 0.7 percentage points. In some countries, such as Italy, Spain and Greece, the increase in the 10-year yield during the year was lower than in other euro area countries. Thus, their yield spreads against Germany narrowed.
The yield spread of Finland’s 10-year government bonds against Germany also narrowed during 2025 to a year end figure of approximately 0.3 percentage points. A year earlier, this yield spread was about 0.4 percentage points.
On the money markets, the 12-month Euribor declined by 0.2 percentage points in 2025, closing the year at 2.24%.
On secured money markets, the rise in rates against the ECB deposit rate continued – having begun in 2024 – with some of the secured money market rates rising above the deposit rate. Factors contributing to this include an increase in the demand for liquidity on money markets and a higher level of government bond supply on both the primary and secondary markets than in previous years.
Europe outperformed the United States on the equity market
On the equity market, 2025 was a good year for both the United States and Europe. In the United States, the rise in share indices was centred on shares in the technology and artificial intelligence sectors, as in the previous year. The S&P 500 Index rose by 16% in 2025.
In the euro area, share indices performed better than in the United States, and the EURO STOXX Index rose by 21% during the year. On Nasdaq Helsinki, the OMX Helsinki Index rose by 30%.
During the year, the euro strengthened by 13% against the dollar and the exchange rate rose from 1.04 to 1.17.
The price of gold rose by 65% in 2025, representing a phenomenal increase. The price reached a new record at the end of December: EUR 3,800 per troy ounce.
Finland’s economy stagnated in 2025
Finland’s annual rate of economic growth for 2025 was almost non-existent. The fall in inflation and the lowering of interest rates strengthened households’ purchasing power, but the uncertainty surrounding the labour market and the future outlook kept private consumption and investment subdued.
Although growth in exports provided support to the economy, the general government deficit continued to deepen and the public debt grew further.
Private consumption did not grow
In 2025, Finland’s gross domestic product (GDP) grew by just 0.2% on the previous year. No significant improvement was seen in investment and consumption, despite the support of lower inflation and reduced interest rates.
Household purchasing power strengthened nevertheless, due to lower inflation, higher wages and the reduced interest burden for indebted households following the interest rate cuts. However, due to low confidence and a weak labour market, household savings remained high and private consumption did not increase.
Residential construction gloom continued in 2025
The trend in private investment remained unfavourable in Finland. Residential construction, in particular, was in considerable difficulty, with no growth in the sector in 2025. Housing sales were exceptionally slow and the number of unsold new dwellings was high.
Permit applications for housing construction and the number of new starts both remained at a low level throughout the year.
Recovery in Finland’s export markets
Growth continued in Finland’s export markets, despite the weaker growth outlook for the world economy. Exports were consequently up by just over 3% from the previous year, consisting principally of growth in goods exports. However, as imports also grew by approximately 1.5%, the contribution of net exports to growth was slightly weaker than in 2024.
Finland’s public finances remained weak in 2025. The general government deficit was 3.7% of GDP, and the general government debt (excessive deficit procedure (EDP) debt) rose above 88%.
Finland’s financial system remained stable in 2025
Although interest rates on new loans stabilised during 2025, Finnish households and businesses remained cautious about borrowing and investing. This reduced the level of household debt relative to income.
The functioning of the financial system and the availability of banking services remained good despite the tension in global politics and constant network disruptions.
Interest rates on new loans stabilised
Finnish households generally use short-term market rates as reference rates for their bank loans. As a consequence, changes to monetary policy key interest rates and to market rates are, in Finland, quickly reflected in the interest rates on new and existing bank loans.
The average interest rates on new bank loans continued to fall with market rates in early 2025, but rose slightly towards the end of the year.
Households and businesses avoided further borrowing
Despite loan rates being lower than a few years ago, households and businesses were cautious about making major investments and taking out loans.
Finnish households’ high debt-to-income ratio continued to fall as borrowing was sluggish and income growth moderate.
Availability of banking services remained good
In 2025 the tense geopolitical situation was not reflected in financial services as strongly as in the previous year.
Denial-of-service attacks are now commonplace in the financial sector, but in 2025 the impact and extent of the attacks were less severe than the previous year. During the year, there were no attacks that had a significant, long-term impact on banking services.
Finland’s international data network connections were again disrupted in 2025. The damage was again financial and did not materially disrupt the availability of banking services. Telecommunications operators’ ability to re-route traffic remained good.
