FILE PHOTO: People walk past the Presidential Palace in Helsinki, Finland July 13, 2018. REUTERS/Leonhard Foeger/File Photo

HELSINKI (Reuters) -Finland's monthly unemployment rate rose to a 20-year high of 10% in August, data from Statistics Finland showed on Tuesday, as the Nordic country struggles to stave off a persistent economic stagnation.

In the second quarter of the year, only Spain's quarterly unemployment rate, at 10.29%, stood higher among euro zone member states than that of Finland at 10.2%.

The Finnish economy has been hit hard by global economic turmoil and uncertainty stemming from the war in Ukraine, with trade with neighbouring Russia drying up and export companies hampered by the subsequent energy crisis pushing up costs.

Finland's economy contracted 0.9% in 2023 and grew by 0.4% in 2024, while its finance ministry on Monday forecast sluggish 1% growth for this year. The monthly unemployment rate has been rising again since June after a dip in May.

Amid the economic malaise, Finland's three-party right-wing coalition has introduced austerity measures and spending cuts to contain public deficit growth but the measures have also dented economic growth and led to layoffs.

Finland's budget deficit is set to rise to 4.3% of gross domestic product this year from 3.7% in 2024, the finance ministry said, above the EU's ceiling of 3%, while the Finnish debt ratio is set to rise to 86.9% of GDP, also above the EU goal of 60%.

Finance minister Riikka Purra, of the nationalist Finns Party, defended the government's economic policies on Tuesday as parliament discussed next year's budget, calling Finland's budget deficit "a chronic problem and therefore even more dangerous".

"The public must not be misled into thinking that savings need not be made," she said, while acknowledging that "unemployment is our biggest problem at the moment".

(Reporting by Anne Kauranen in Helsinki and Elviira Luoma in Copenhagen; Editing by Alison Williams)