Operating environment, Q1 2025
The optimism of early 2025 disappeared by the end of the first quarter as the market slid into uncertainty. The European and American markets developed in different directions: In Europe, the eased monetary policy supported the stock market, whereas the increase in interest rates and inflationary pressures in the United States continued to challenge the market. Wars, crises, escalating trade policy concerns and other geopolitical tensions contributed to the instability of the investment market.
The uncertainty of capital markets is reflected in private capital as investors are reluctant to commit to illiquid assets. The transaction market has shown signs of recovery, but distributions of capital to investors are still scarce, which hampers new commitments. In fundraising, the current challenges are expected to continue throughout this year. On a positive note, according to a survey conducted by Preqin, half of investors intend to invest more in private markets in both the short and long term.
Renewable energy
The gradual decrease in the interest level in the operating environment for renewable energy has reduced the costs of construction and project operation, improving investment prospects. The global transition towards renewable energy continues and supports the growth of the business. The war in Ukraine has accelerated this development, but the increased risk level has driven investors to reduce the weight of private capital asset classes in their investment portfolios.
A general decrease in electricity prices has reduced uncertainty related to electricity price regulation and increased discussion on new support mechanisms aimed at increasing investments in renewable energy in Europe. The drop in electricity futures prices in Central Europe over the last few months has, however, slowed the realisation of investments.
Bioindustry
Incentives through regulation and emissions trading play a crucial role in driving the commercialisation of bioindustry projects and enhancing their competitiveness. In the end of the first quarter of 2025, the average prices of emission allowances in the EU Emissions Trading System (ETS) remained unchanged from 2024. The price development of replaceable raw materials and raw materials used in production influences the demand for bioindustry products. The average price of coal futures declined in the first quarter of 2025 compared to the 2024 average. The increase in the price of wood levelled off in the first quarter.
The downward pressure on raw material prices presents opportunities for expanding the production of Taaleri’s associated company Fintoil’s biorefinery in Hamina. The slower-than-expected enforcement of the Renewable Energy Directive RED III and the stagnant growth of the market for biodiesel and sustainable aviation fuels are still holding back the growth prospects of the industry.
Real estate
Real estate transaction volumes are predicted to grow in 2025 following a historically quiet year. In Finland, however, the real estate market has yet to show significant signs of recovery, as reflected in its lacklustre performance during the early months of 2025. The number of new housing starts remained low in relation to long-term demand. The decreased interest rate level has improved the availability of loans, which stimulates real estate business and enables the refinancing of existing properties.
Garantia Insurance Company Ltd’s operating environment improved slightly in the first quarter of the year thanks to the gradually recovering Finnish housing market and increased amount of new mortgages.
Garantia
Garantia Insurance Company Ltd’s operating environment improved slightly in the first quarter of the year thanks to the gradually recovering Finnish housing market and increased amount of new mortgages. The volume of housing transactions increased in the first quarter by approximately 25% year-on-year, and the number of new mortgage guarantees underwritten by Garantia grew faster than the housing market in general. On the other hand, the prolonged weak economic situation in Finland was also reflected in increased unemployment, but the creditworthiness of the company’s residential mortgage guarantee customers largely remained good and no significant changes occurred in the risk position of the guarantee insurance portfolio.
As a result of subdued economic activity and the increased threat of trade war, companies’ willingness to invest remained low and the number of bankruptcies initiated continued on an upward trend. Demand for corporate financing remained modest. However, the creditworthiness of the corporate counterparties of Garantia’s guarantee insurance portfolio mostly remained stable.
The market conditions for Garantia’s investment operations became more challenging in the first quarter of the year due to heightened geopolitical tensions and the threat of trade war.