Increased defence spending is expected to support GDP growth, according to comments made by Rehn. However, this impact is anticipated to manifest only over the medium-term.
In the short-term, existing US tariffs and rising uncertainty are already producing negative effects on the economy.
Rehn recently received reappointment as the governor of the Bank of Finland for another seven years, beginning on 12 July. This follows his unsuccessful bid for the presidency of Finland last year.
Impact Of Military Expenditure On Growth
Rehn’s remarks suggest that while higher military expenditure may contribute to economic expansion, the benefits will not be immediate. Instead, any boost to overall output will emerge gradually over the coming years rather than in the next few quarters.
Right now, the pressures weighing on growth are more immediate. Current trade restrictions from the US, coupled with heightened unpredictability, are already affecting economic activity. These factors are feeding into weaker sentiment, which in turn could dampen investment and consumer spending. If uncertainty persists, businesses may delay hiring or expansion plans, potentially dragging on output further.
Rehn’s reappointment means continuity in leadership at the Bank of Finland. His extended tenure could help provide stability in policymaking, especially given the challenging conditions facing both global markets and domestic economic performance. His prior experience guiding monetary policy decisions will likely shape his approach in the years ahead.
Market Considerations Amid External Risks
For those assessing market movements, the delayed impact of higher state expenditure means the focus should remain on current external risks rather than longer-term fiscal stimulus. Any reaction to rising defence budgets will take time, whereas factors such as restricted trade conditions are already influencing prices and expectations.
