Finland cuts growth forecast as Iran war fuels energy shock

Finland's economic recovery is slowing as the war in Iran and rising energy prices weigh on growth, the country's central bank said Tuesday.

The Finnish economy began recovering in late 2025, with growth continuing into early 2026. However, the Bank of Finland said momentum has since weakened following US and Israeli strikes on Iran.

According to the central bank's revised forecast, Finland's gross domestic product (GDP) is expected to grow by 0.6% this year, down from previous estimates of 0.8%, before accelerating to 1.4% in 2027 and 1.5% in 2028.

The outlook remains "clouded" by conflicts in the Middle East and Ukraine, as well as growing uncertainty in global trade linked to changes in US tariffs, the bank said.

"The starting point for this year's growth was even slightly better than predicted in December, but the increase in energy prices is hampering growth," Juuso Vanhala, the central bank's forecasting chief, said in a press release.

He added that the outlook could change "rapidly" given current global uncertainty.

Inflation, which slowed last year, is expected to rise again due to the "energy shock" linked to the Iran war, the bank said. It is forecast to reach 1.9% this year before easing slightly in 2027.

The bank also warned that disruptions to fuel shipments in the Persian Gulf could push energy prices higher, with knock-on effects on food, industrial goods and other products.

"The rising cost of energy will raise consumer prices this year, but the impact on next year will depend crucially on the duration of the energy supply disruption," Vanhala said.

The central bank forecasts unemployment at 10.2% this year, declining to 9.7% in 2027 and 9.2% in 2028.

The bank said the duration of the conflict and its impact on energy markets remain key sources of uncertainty.