World’s happiest country is grappling with rising unemployment and economic stagnation

Harsh economic headwinds are weighing heavily on the world’s happiest nation. Finland is confronting economic stagnation, rising unemployment, and growing pressure on public finances, yet it has still secured the title of world’s happiest country for the eighth consecutive year in the annual World Happiness Report. Experts attribute this resilience largely to a generous welfare state, though ministers have begun trimming benefits as they grapple with the surging social costs of an ageing population.

33-year-old Juho-Pekka Palomaa is determined not to let the country’s challenges erode his outlook. Palomaa, who marked his 1,000 days of unemployment with a bring-your-own-food protest on the steps of parliament, said he has been grateful for the safety net that has supported him financially. A former video producer, he has submitted numerous applications and completed 11 unsuccessful interviews, yet feels there is little he can do to change his circumstances. While unemployment benefits have been cut, he said pensions remain “almost sacred” in comparison.

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A struggling economy and rising deficits

Finland’s export-driven economy has been under strain since the collapse of Nokia’s phone business in 2014, after the company failed to keep pace with the transition to touch-screen smartphones. Sanctions on neighbouring Russia over its war in Ukraine have further dented exports and tourism, while uncertainty surrounding global trade and tariffs poses additional risks.

The Bank of Finland expects economic growth of 0.3% this year, down from 0.4% in 2024. Unemployment stands at nearly 10%, one of the highest rates in the European Union, and rises to 21.2% among people aged 15 to 24.

The European Commission is due to decide on Tuesday whether to propose placing Finland in an Excessive Deficit Procedure, after forecasting that the country’s budget deficit will remain above the 3% EU limit for the next three years. Finland’s general government budgets have been in deficit every year since the 2009 global financial crisis. Last year’s deficit of 4.4% was the second largest in 25 years, surpassed only by the 5.5% shortfall recorded during the Covid pandemic.

These pressures have pushed the government to cut back elements of the welfare state, including unemployment and housing benefits and some medical facilities.

Hanna Taimio, 54, another unemployed Finn who joined Palomaa’s commemoration, said she fears she may never return to work, describing the wave of cutbacks as frightening for younger generations. The right-wing coalition government, in office since 2023, aims to strengthen public finances and bring rising debt under control. Minister of Employment Matias Marttinen called the jobless rate “an awful situation” but defended plans to ease dismissals in an effort to reduce hiring risks and improve employment levels.

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Critics argue, however, that austerity measures have worsened economic challenges and dampened consumer confidence. Lauri Holappa, director of the Finnish Centre for New Economic Analysis, cited simulations suggesting the fiscal consolidation measures may even have increased the public debt rate.

Resilience underpins Finland’s happiness

According to the World Happiness Report’s founding editor, emeritus professor John Helliwell, national happiness is shaped more by resilience and the ability to work collaboratively in difficult times than by economic conditions alone. He said Finland performs strongly in these areas. Survey data for next year collected by Gallup and seen by Reuters shows no major shifts in Finns’ reported happiness, with assessments also reflecting indicators such as GDP per capita, social support and healthy life expectancy.

Despite the financial impact of his long jobless spell, Palomaa has found comfort in a free, volunteer-run community sauna by the Baltic Sea in Helsinki, a place he describes as socially equal. After asking his social media followers what he should do to mark his 1,000th day of unemployment, he received a million views and a stream of suggestions, prompting the bring-your-own-food event he held outside parliament. Sharing his home-made pastries in the misty rain, he said he never expected to commemorate such a milestone. Yet he decided that this was his moment and resolved to seize it.