Tl;dr: Finland, a social democratic welfare state, has had no GDP growth in real terms between 2008 and 2025. There are few obvious economic “effects” of stagnation, because many indicators fluctuated up and down in this period and those that rose persistently had been rising also before stagnation. Wealth inequality rose persistently while income inequality appears to not have changed. Rising nominal incomes during high inflation lead to stagnating real incomes. Private debts rose until Covid lockdowns and are now being paid back. Public debt has risen persistently, though the cost of debt has not risen. The most obvious “effect” of stagnation seems to be political: debt reduction has become a dominant policy aim. To those ends, the political norm is to emphasize spending cuts over tax increases. Political support for the welfare state cannot be taken for granted.
[edit 8.1. – I corrected a misinterpretation concerning GDP statistics, which however didn’t affect any other claims in the text.]
A key question in post-growth economics is what unwanted effects may follow from low GDP growth – and how to mitigate them. Unwanted effects are easy to theorize, but it’s also good to review what has happened in real low-growth economies.
Japan is the most frequently mentioned case of a high-income low-growth economy. Cuba has also been proposed as a relevant case study, and several European countries have recently had relatively long periods of stagnation. In this post, I will review Finland, whose economy has effectively stagnated since 2008. This 16-year period has entailed several up- and downswings in succession, which combined with price rises add up to net zero real growth. Furthermore, many influential organizations continue to project only slow growth for the coming years.
Finland is a small country (5.6 million people) that rarely makes international headlines, but it has many features that make it an interesting case study. It is a high-income economy in per capita terms (17th highest in the world), the kind whose further material enrichment is questioned by growth-critical research. It is an EU Member State and thus (at least nominally) subject to public deficit and debt maxima. Unlike Japan, Finland is part of a currency union, the Euro, and thus lacks its own country-specific monetary policy. Furthermore, European monetary policy ideals are on the conservative side.1
It is also interesting that Finland is a social democratic welfare state. It has relatively high redistribution, a tradition of universalist social provisioning, high state involvement in certain economic sectors, and high unionization rates. Many policy issues are governed by the labor market parties (instead of being unilaterally decided by the state). At least some of these aspects are sometimes considered advantageous in post-growth research. Granted, all of them have also been eroded in recent years, but the point is that the political economy and political tradition of Finland have a recognizable “character”.
Overall, on paper, legacy social policy institutions should make make the Finnish economy relatively resilient against the negative effects of stagnation; while European institutions should constrain what economic policy responses to stagnation are possible.
This post is not a systematic analysis, so its point is only to compile a set of discussion points and simple observations for further evaluation. Another caveat is that I don’t think stagnation is a direct or singular “cause” of very many things: society does not reduced to GDP trends.2 Indeed, many of the indicators I cite below point toward a more conditional and complex analysis of stagnation effects. Nonetheless, I put the word “effect” in the title because I think the point of this kind of review is to inform a discussion about what effects of stagnation are likely (or possible, or dubious). I will divide the recent developments in stagnating Finland into economic and political developments.
Economic developments
Rising unemployment is a typical concern associated with stagnation. In the stagnation period, the unemployment rate has fluctuated between 5.4% (at the start of Covid) and 11.7% (in 2015). The ongoing upswing began in early 2023 when the current austerity-oriented government took office (I don’t think this is coincidence) and unemployment has again broken 10%. This is the second-highest unemployment rate in the EU after Spain. Finnish stagnation-era unemployment has been worse than Japan’s, for example.
As one measure of business viability, the number of bankruptcies naturally spiked in 2009, but largely remained around the pre-2008 norm since. However, bankruptcies have been growing since 2020 and are now again around the 2009 level.3
Real labour incomes are today at about the same level as in 2015. While nominal wages have risen substantially since 2008 (I’m guessing because of wide-spread and continuous union-negotiated hikes), inflation has eroded real wages especially since 2021.
Public debt has generally risen since 2008: from about 30% of GDP to more than 80% today. Since this exceeds the EU’s 60% limit it formally needs to be reduced. However, in wider EU context, the national debt does not particularly stand out. Altogether 12 out of 27 EU countries exceed the 60% public debt limit. The total debt ratio across the EU, 82% of GDP, is approximately the same as Finland’s national debt ratio. The main way in which Finnish public debt arguably stands out is relative to other social democratic welfare states (whose “social contracts” imply a similarly high level of government spending as in Finland).4
Since 2008, the cost of government debt (10-year bond) first declined from around 4% to the Covid-era negative rates, following very low central bank rates. Rates on debt have today bounced back to about 3%. The spread relative to German debt has fluctuated over time. Right now it is somewhat elevated but still below 1% (see here, page 14).5 Finnish debt looks to still be trusted.
Household debt rose quite steadily from 2008 until the Covid lockdowns, from 106% to 134% of disposable income. The real debts of firms rose by about 138% between 2010 and 2022. Both households and firms have been deleveraging after lockdowns.
The main theoretical connections between stagnation and inflation to my mind are the possible slowing of demand-driven inflation and inflation of critical assets through rent-seeking. In any case, I am not aware of any inflation trends since 2008 that would have significantly and systematically departed from experiences in other EU countries. The curves tend to move in the same directions, while the specific levels of inflation of course vary.
Rising economic inequality, especially through rent seeking and real estate appreciation, is one prominent concern regarding stagnation. Wealth inequality has continued rising during stagnation, as it did since at least 1987 when the table begins. The top 10% went from owning 43% to 52% of national wealth between 2004 and 2023. In the same period, the bottom 50% halved their share from 8% to 4%. (Notably, this trend reported by Statistics Finland is not very evident in the figures of World Inequality Database).
Real estate appreciation has ceased being a source of rising wealth. The national average m2 price of homes rose by about 30% from 2008 to 2022, but that trend has since been reversing. By contrast, average rent (nationally and in the capital area) is still on an upward trajectory. Rent has steadily increased by about 15% between 2015 and 2025 (however, because also the average nominal wage has increased, I don’t know if the share of incomes used to pay rent has risen).
Income inequality (labour and capital incomes) before redistribution grew somewhat from Gini coefficient 48.9 (2008) to 52.3 (2024), with some fluctuation in between. But after redistribution the Gini has not changed at all in this period.
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Taking some stock of of these figures, I would be most concerned about the fact that wealth inequality continues rising with or without economic growth. Additionally, the ongoing trend of rising unemployment and bankruptcies that started during / after the Covid lockdowns is alarming, though notably both indicators have fluctuated over the full stagnation period. It is heartening that income inequality (after redistribution) is not rising, although we will see in a few years what the effects of the current government changes that.
The rising debt of households and firms through most of the stagnation period, until quite recently, is also notable. I rarely see analysis pointing to high private indebtedness and deleveraging as a hindrance of growth. This is surprising given that private debt has been used to explain e.g. Japan’s long stagnation.
Besides rent and nominal wages, one of the only curves that has consistently risen in the stagnation period is government debt. Here, too, it is encouraging that there is no serious market concerns around Finnish debt sustainability, as debt continues being moderately priced. I suspect one reason for this is that the modern European Central Bank has since 2012 in practice become a more credible buyer of last resort. It has had several (secondary market) debt purchasing programmes and a proven record of getting through a pandemic without any sovereign debt crises. The conditions in the Euro Area are thus different to the 2009-2012 crisis, when there were legitimate concerns of creditors not getting their money back (exit from Euro -> devaluation). This does not mean that more debt is “good” – debt repayments are a significant cost, and according to the nominal EU rules debt should reduce – but I think debt should be seen as one cost and benefit among other costs and benefits rather than a severe risk. (I wrote about this in more depth in a previous post in Finnish).6
Nonetheless, government debt has become the dominant issue that frames most of political discourse. Indeed, given that there have been few persistently negative economic developments across the stagnation period 2008-2025, the main negative outcome from stagnation has to my mind been political.
Political developments
The two negative political developments of the stagnation period that I would highlight are a constant political pressure to cut public spending and a dominant concern around the public debt ratio. These are not a matter of one party or party block dominating discourse, but of the general narrowing of policy alternatives. Virtually all election cycles since 2008, and all / most governments, have been focused on finding ways to cut spending.7
A common anticipated effect of stagnation is intensifying distributional conflict. The emphasis in Finnish political discourse is much more on finding ways to cut rather than finding ways to tax. Though Finnish people are quite happy to pay tax in general, and three out of four Finns think the welfare state is worth its cost, only one in four say they are willing to pay higher taxes for welfare systems. Support for the welfare state is also declining in the political right.
The apparently low willingness to pay more for welfare provisioning (e.g. under an aging population) feels concerning to me, because it is difficult to see how post-growth welfare provisioning can be sufficient and financially sustainable without quite high redistribution (or, alternatively, relatively high income equality before redistribution – which would require some more complex societal change that might take time).
It would be good to see systematic scenario calculations of post-growth welfare state costs. But for the time being most public finance calculations instead assume that GDP growth resumes and alleviates fiscal burden. For the past 16 years this has been a mistaken assumption that may have systematically recommended setting taxes too low relative to social needs. I think this is an under-appreciated aspect of public finances, though I would like to see a more detailed analysis of whether this effect has actually observable.
My main hope is that if redistribution is highly progressive (e.g. maximum incomes, which can be politically popular of framed right), packaged with policies that speak to many demographics and life paths, and paired with an overall attractive future vision, an anti-austerity programme can be more popular than many politicians now seem to believe. In any case, I would not have much faith in post-growth programmes that only proposes taxes without other types of broadly attractive and “synergistic” change.
The other political effect, the dominance of public debt fears, ties quite directly to stagnation. Remember that rising debt was a persistent economic trend of the stagnation period. In a growth era, rising GDP would in part erode the debt/GDP ratio, but this effect is now gone.
Recently almost all parliamentary parties (excluding the Left, 11/200 seats) agreed on an upcoming “debt break” law that requires government to reduce the debt ratio toward 40% – which is beyond the EU 60% threshold. The required pace of reduction has been somewhat unclear, at least to me, because it’s calculated based on fluctuating variables. In any case, critics have argued that the required reduction can become unreasonably steep, and the debt break risks becoming a driver of long-term austerity. There was little impact assessment on the law, which makes sense if you think any debt above 40% is inherently a problem, but otherwise it is childishly reckless and simplistic.
It is possible that the debt break is so strict that even right-wing governments would struggle to follow it. Still, as a political signal, the debt break is disheartening because it artificially delegitimizes policy alternatives that feature strong economic steering toward sustainability transition and sufficient social safety nets that shield from the possibly ensuing instability. For example, I don’t see why a government budget that would reduce debt much more slowly, or in alignment with prevailing EU norms (which fluctuate and don’t always align with the formal rules), would be economically bad. If Member State budgets promote EU policy priorities (defense, climate, etc.), I think it is totally possible that even rising debt can be also politically accepted in the EU.
Conclusion
Capitalist economies and states are generally considered to “be dependent” on economic growth. But these concerns are typically framed as theoretical long-term dependencies: if growth ends, then eventually economies stop functioning; eventually the state is politically undermined; and so on. I don’t necessarily argue against this, but we also know that a country can stagnate for decades with a state and a capitalist economy intact. States and capitalism are not really “at stake” in the medium term. Medium-term economic dynamics are particularly important for discussions about policy and “transition strategy” toward sustainable post-growth institutions.
Many economic indicators in Finland have not developed linearly through the stagnation period. I think this is important to note because in theoretical growth dependence discussions it is easy to slip into an expectation that low growth “causes” things as if those effects are direct, linear, or immediate. Instead, what practically occurs in the short- and medium terms is more contingent and complex.
This blog post is only cursory, and I do not aim to make very strong claims. Still, I think it is useful to note at least the following. Wealth inequality has risen in the stagnation period just as during the growth era. The ongoing unemployment and bankruptcy upswing is concerning, but it also coincides with particularly strong austerity politics, and in that regard politics looks like an intuitive “cause” of those trends. For now, I consider the normalizing of austerity and the all-encompassing concern, even panic around public debt to be the most socially harmful societal developments in stagnating Finland.
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1. There is palpable distrust in the EU and Finland toward using monetary policy in support of / alignment with government finances (a likely aspect of post-growth economic policy) or to promote societal / sectoral policy aims (which is what e.g. the Chinese central bank does). This is despite the fact that “unconventional” policies like government debt purchases are today, with qualifications, formally part of ECB’s policy options.
2. For more on how to understand the “effects” of zero growth, you can look at e.g. Janischewski et al. or one of my pension papers.
3. For what it’s worth, the fluctuations in bankruptcies do not seem to mirror fluctuations in new businesses. So bankruptcies aren’t rising because more businesses are set up.
4. That said, France has a higher debt stock with about the same size of state expenditure.
5. Spread refers to the difference in the rates of two different bonds. Because German debt is traditionally deemed particularly safe, and thus tends to have lower cost, the spread against Germany is one way to evaluate whether cost of debt is high or not.
6. To name some reasons that make the ECB and the political unity of the Euro more credible: the Court of Justice agreed that ECB’s Eurocrisis public debt purchases were legal; the ECB’s stance was “battle tested” during Covid; France and Germany are behaving in relatively financially lax ways; the EU is unlikely to politically abandon Member States, especially at the Russian border, now that it strives for political unity against global rivals – this was not clear during the Eurocrisis.
7. Finland has had many types of governments during its stagnation era: a fairly left-wing government, mixed governments, and the current and historically very right-wing government. No single party or ideology has been consistently winning during stagnation, and the “normal” reshuffling of government every few years has remained . A far-right party rose to prominence in the stagnation period, but the same has occurred in many other (economically growing) countries. Euroscepticism, mainly from the populist/far-right, was somewhat prominent during the Eurocrisis 2009-2012, but the EU is generally viewed favorably.
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