## 1finea2025001-print-pdf

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### Overview and recent developments
- Growth and investment
  - Real GDP cumulative growth since 2011: 7 percent.
  - Output fell by 1.2 percent in 2023.
  - Weak rebound in 2024Q1–Q3 with growth averaging 0.3 percent, q.o.q.
  - Key contributors to weak 2023–2024 performance:
    - Weak trading partner growth.
    - Collapse in house prices.
    - Unwinding of elevated inventories.
    - Tight monetary conditions.
  - Investment, especially construction, was particularly hard hit; consumption showed more resilience.
  - More recent support from a pick-up in exports and higher public consumption; high-frequency indicators remain subdued.

- Inflation and wages
  - 12-month headline inflation: 1.5 percent in October 2024.
  - Core inflation: 2.3 percent (October 2024).
  - Correction of a double-counting error in the price of electricity temporarily reduced HICP by 0.7 percentage points; correction dropped out of the annual measure in August 2024.
  - Real wages (2024Q3): grew by 1.5 percent over the previous 12-months.

- Labor markets
  - Employment increased by around 3 percent since 2019.
  - Total hours worked increased by less than 1 percent since 2019 due to a large drop in average hours worked.
  - Recent decline in employment concentrated in the construction sector.
  - Unemployment rate increased in recent months but employment remains relatively high.

### Structural reforms, productivity, and innovation
- Structural reform progress and priorities
  - Ambitious labor market reforms initiated in 2023 will continue to support employment as the economy recovers.
  - Potential reforms to further strengthen long-term growth:
    - Increase participation rates further.
    - Strengthen educational outcomes.
    - Attract more high-skilled talent from abroad.
    - Increase the availability of risk capital.
    - Reduce barriers to entry into the services sector.
    - Continue to pursue the deepening of the EU’s single market.
  - Authorities plan to increase the proportion of young adults attaining higher education degrees to approximately 50 percent by 2030.

- Innovation, R&D, and firm dynamics
  - Strengths:
    - High levels of digitalization, R&D spending, and venture capital finance.
    - R&D expenditure is high by EU standards despite a multi-year decline.
    - Finland has a relatively large venture capital sector supported by public-sector investment funds and a large domestic pension industry.
  - Weaknesses:
    - Formation of high-growth firms (“Gazelles”) has remained modest and slowed.
    - Frontier firms account for less than 10 percent of employment and delivered modest aggregate productivity gains.
    - Non-tech services productivity has been particularly sluggish.
  - Policy considerations:
    - Revisit tax treatment of venture capital funding and rebates associated with investment spending by firms.
    - Address barriers to entry that are more stringent in Finland compared with international best practices.
    - Protect productivity-enhancing spending—public investment, R&D support, and education—when consolidating fiscal policy.
    - Deepen the European Single Market to ease growth constraints.
    - Target regulation and entry barriers in the service sector where productivity has stagnated.

### Downturn in construction investment (Box 1)
- Key findings
  - The collapse in construction investment is the most severe since the early 1990s.
  - Since early 2022, higher interest rates and weak economic conditions triggered a steep fall in real estate prices.
  - Real construction investment fell by around 20 percent.
  - High frequency indicators suggest the construction cycle may have turned, but recovery strength is highly uncertain.
- Historical evidence on recovery dynamics
  - In Finland after the 2010 decline:
    - Initial recovery began after 1½ years.
    - It took around 6 years to reach its previous peak.
  - Cross-country evidence (1996Q1–2024Q1): most episodes with construction investment declines between 10 and 30 percent did not recover to previous peaks for at least 5 years.
- Factors affecting prospects
  - Downside persistence drivers:
    - Large fall in construction investment (around 20 percent).
    - High pass-through of higher interest rates to mortgage rates.
  - Upside factors:
    - Absence of a financial crisis.
    - Little indication that house prices were substantially overvalued prior to the downturn.

### Fiscal developments, outlook, and debt dynamics
- Recent fiscal outcomes
  - Fiscal deficit deteriorated to 3 percent in 2023.
  - Public debt: 77 percent of GDP in 2023 (Annex III).
  - Fiscal deterioration drivers: defense and immigration-related spending, higher goods and services prices, rising interest payments, and pressures via the “Wellbeing Service Counties”.
- Fiscal projections and staff recommendation
  - Fiscal deficit expected to deteriorate to 3.7 percent of GDP in 2024.
  - New consolidation measures announced in Spring 2024, including an increase in VAT rates; full impact not realized until 2025.
  - Staff recommendation: fiscal consolidation of ½ percent of GDP per year from 2025 to 2029 to close the fiscal balance and put debt on a declining path while protecting productivity-enhancing spending.
  - Public debt projections (selected):
    - 2023: 77.0
    - 2024: 81.6
    - 2025: 84.2
    - 2026: 85.3
    - 2027: 85.9
    - 2028: 86.6
    - 2029: 87.4
    - 2030: 88.2
    - 2033: 91.1
  - Primary deficit (percent of GDP) projection highlights:
    - 2023: 3.0
    - 2024: 3.8
    - 2025: 2.9
    - 2026: 2.0
    - 2027: 1.4
    - 2028–2033: 1.0 each year.
- Debt dynamics drivers (selected contributions, percent of GDP)
  - Automatic debt dynamics:
    - 2023: -0.8
    - 2024: -0.1
    - 2025: -0.7
    - 2026: -0.4
    - 2027: 0.2
  - Real interest rate and relative inflation contribution:
    - 2023: -1.6
    - 2024: -0.4
    - 2025: 0.5
    - 2026: 0.9
  - Real growth rate contribution:
    - 2023: 0.9
    - 2024: 0.3
    - 2025: -1.2
    - 2026: -1.3

### External sector and external position
- Current account and trade
  - Current account improved to -0.4 percent of GDP in 2023.
  - 2024 projected current account: -0.3 percent of GDP.
  - Despite flat export volumes in 2023, import volumes fell by 7 percent due to weak domestic demand.
- External position assessment
  - Overall assessment: The external position for 2024 is estimated to be moderately weaker than the level implied by fundamentals and desirable policies (Annex IV).
  - Staff model-based assessment (EBA methodology):
    - Cyclically-adjusted CA: -1.0 percent of GDP.
    - CA norm: 0.6 percent of GDP.
    - Staff estimate of CA gap for 2024: -1.6 percent (range -1.0 and -2.2).
    - REER gap (staff estimate): 4.8 percent (range 3.0–6.7).
  - NIIP developments:
    - NIIP strengthened to 12.6 percent of GDP in 2023.
    - Staff projection for end-2024 NIIP: 12.0 percent of GDP.

### Financial sector resilience and macro-financial developments
- Macro-financial indicators
  - Domestic credit growth (yoy): -0.8 in October 2023 to 0.9 percent in October 2024.
  - Lending rates on new bank loans have begun to decline.
  - Tentative signs that house prices stabilized; modest recovery in mortgage lending and residential real estate activity.
  - Credit-to-GDP gaps and other credit indicators remain below trend.
- Banking sector soundness (selected 2024Q2 metrics)
  - Regulatory Capital to Risk-Weighted Assets: 22.0 (2024Q2).
  - Regulatory Tier 1 capital to Total assets: 5.8 (2024Q2).
  - Non-performing Loans to Total Gross Loans (2024Q2): 1.4.
  - Return on Assets (2024Q2): 1.3.
  - Return on Equity (2024Q2): 16.0.
  - Liquid Asset Ratio (2024Q2): 20.5.
  - Customer Deposits as Percent of Total (non-interbank) Loans (2024Q2): 62.4.
- Vulnerabilities and policy recommendations
  - Vulnerabilities: heavy reliance on short-term wholesale funding, high household debt, interconnectedness with Nordic countries, CRE price correction risks.
  - Recommendations:
    - Enhance bank liquidity buffers and increase stock of high-quality liquid assets.
    - Continue Nordic-Baltic joint stress tests; staff welcomes reinstatement of the SyRB to pre-pandemic level.
    - Legislate a positive neutral rate on the CCyB that could be released in periods of extreme stress.
    - Incorporate borrower-based measures (debt-to-income and debt-service-to-income limits) into the macroprudential toolkit.
    - Monitor non-bank financial institutions, particularly real estate funds facing liquidity challenges.

### Outlook and key macroeconomic projections (selected percent and levels)
- Headline forecast (WEO and staff calculations)
  - 2022 GDP Growth: 1.5
  - 2023 GDP Growth: -1.2
  - 2024 GDP Growth: -0.3
  - 2025 GDP Growth: 1.5
  - 2026 GDP Growth: 1.5
  - HICP inflation (avg):
    - 2022: 7.2
    - 2023: 4.3
    - 2024: 1.0
    - 2025: 2.0
    - 2026: 2.0
  - Unemployment rate:
    - 2022: 6.8
    - 2023: 7.2
    - 2024: 8.3
    - 2025: 8.1
    - 2026: 7.9
- Additional projection table highlights (selected series, percent or levels as reported)
  - Participation Rate (15-74 years): 2024 = 68.9; 2025 = 69.3; 2030 = 71.4.
  - Employment growth: 2024 = -1.1; 2025 = 0.5.
  - General Government Gross Debt (percent of GDP): 2024 = 81.6; 2025 = 84.2; 2030 = 88.2.
  - Current account (percent of GDP): 2024 = -0.3; 2025 = -0.4; 2030 = -0.1.
  - Exports of goods and services (billions of euros): 2024 = 116.7; 2025 = 120.0; 2030 = 139.4.
  - Imports of goods and services (billions of euros): 2024 = 114.5; 2025 = 118.5; 2030 = 138.3.
  - GDP at current prices (billions of euros): 2024 = 279.5; 2025 = 289.4; 2030 = 342.3.

### Risks and scenario orientation
- Overall risk tilt: Risks are tilted to the downside; external downside risks dominate.
- Major external downside risks listed:
  - Escalation of Russia’s war in Ukraine.
  - Adverse shock in other Nordic countries, including in the real estate market.
  - Greater geoeconomic fragmentation.
  - Commodity price volatility.
  - Further tightening of global financial conditions.
- Domestic upside risks:
  - Faster recovery from higher investment and innovation from the green transition.
  - Expansion of the ICT sector.
  - Stronger employment growth from recent reforms.
- Growth narrative: Investment expected to recover but not return to pre-pandemic levels until 2027; external demand will recover but remain below the euro area average.

### Authorities’ views and mission details
- Authorities’ stance
  - Acknowledge ongoing challenges and slow construction sector recovery.
  - View slight contraction projected for 2024 as a turning point with a nascent recovery ahead.
  - Expect 2023 labor market reforms’ impact to become more apparent during the upward phase.
  - Consider near-term risks tilted to the downside and medium-term risks broadly balanced.
- Mission and administrative details
  - Mission took place virtually (October 24–25, 2024) and in Helsinki, Finland (October 29–November 8, 2024).
  - Team head: Alex Pienkowski; team members and assistants as listed in the document.
  - Approved By: Oya Celasun (EUR) and Martin Sommer (SPR).
  - Date on document: December 12, 2024.

### Key policy recommendations (summary)
- Fiscal policy
  - Implement fiscal consolidation of ½ percent of GDP per year from 2025 to 2029 while protecting productivity-enhancing spending.
  - Use fiscal consolidation to improve the external position.
- Labor market and structural reforms
  - Advance measures to increase participation (target ~50 percent tertiary attainment by 2030).
  - Promote hiring of workers with reduced work capacity and older workers; strengthen integration of immigrants.
  - Expand vocational training, apprenticeships, PES capacity, and active aging initiatives.
- Financial stability and macroprudential policy
  - Enhance liquidity buffers and high-quality liquid assets in banks.
  - Reinstate and maintain borrower-based macroprudential measures and legislate a positive neutral CCyB.
  - Continue Nordic-Baltic stress-testing initiatives and monitor non-bank financial institutions.
- Productivity and innovation
  - Revisit tax treatment of foreign and domestic VC vehicles to improve access to risk capital.
  - Reduce barriers to entry in services and deepen Single Market integration to scale VC funds and cross-border capital.
- Climate and LULUCF
  - Restore carbon sinks over the medium term; consider taxes on lumbering, land-use change, and burning of biomass.
  - Consider greater equalization of carbon taxes across sectors to help meet carbon-neutrality objective by 2035.

*International Monetary Fund — Finland: Mission report (December 12, 2024).*

### introduction of a positive neutral counter-cyclical capital buffer and a full set of

### introduction of a positive neutral counter-cyclical capital buffer and a full set of borrower-based macroprudential measures would strengthen resilience further.

### Structural reforms
- Ambitious labor market reforms initiated in 2023 will continue to support employment as the economy recovers.
- Potential reforms to further strengthen long-term growth:
  - Increase participation rates further.
  - Strengthen educational outcomes.
  - Attract more high-skilled talent from abroad.
  - Increase the availability of risk capital.
  - Reduce barriers to entry into the services sector.
  - Continue to pursue the deepening of the EU’s single market.
- Deeper structural reforms are needed to raise productivity growth despite Finland performing well on many business and innovation metrics.

### Recent economic developments — growth and investment
- Growth has lagged peers over the last decade; cumulative growth since 2011 was 7 percent.
- Since the Global Financial Crisis, stagnation in total hours worked and weaker labor productivity growth have driven slower growth (Annex I).
- Public debt increased by over 40 percent of GDP over the last fifteen years as spending outpaced growth.
- Household indebtedness increased considerably over the period, driven by consumer credit and housing-related loans (housing company and mortgage loans).
- Finland experienced a hard landing in 2023: output fell by 1.2 percent in 2023.
- Weak rebound in 2024Q1–Q3 with growth averaging 0.3 percent, q.o.q.
- Key contributors to weak 2023–2024 performance:
  - Weak trading partner growth.
  - Collapse in house prices.
  - Unwinding of elevated inventories.
  - Tight monetary conditions.
- Investment, especially construction, was particularly hard hit; consumption showed more resilience.
- More recent support from a pick-up in exports and higher public consumption; high-frequency indicators remain subdued.
- Construction investment collapsed under pressure from higher interest rates and weak activity; export volumes stagnated due to weak trading partner growth and long-term loss of market share.

### Inflation and wages
- 12-month headline inflation reached 1.5 percent in October 2024, driven by falling energy prices and moderating core inflation (2.3 percent).
- Correction of a double-counting error in the price of electricity temporarily reduced HICP inflation by 0.7 percentage points; this correction dropped out of the annual measure in August 2024.
- As of 2024Q3, real wages grew by 1.5 percent over the previous 12-months; a decline in corporate profits prevented further inflationary pressure.
- Inflation fell sharply in 2023 as energy prices declined and goods prices stabilized; nominal wage growth accelerated in 2023 supporting a recovery in real wages.

### Labor markets
- Employment increased by around 3 percent since 2019, supported by higher immigration, greater public employment, and increased participation rates.
- Recent decline in employment concentrated in the construction sector.
- Total hours worked increased by less than 1 percent since 2019 due to a large drop in average hours worked, particularly among full-time workers; the largest impact was from high-skilled women (Annex II).
- The unemployment rate increased in recent months but employment remains relatively high.

### Fiscal developments
- Fiscal deficit deteriorated to 3 percent in 2023.
- Fiscal deterioration drivers: increased expenditures associated with defense and immigration-related spending, higher goods and services prices, rising interest payments, and pressure from local government health and social services via the “Wellbeing Service Counties”.
- Public debt increased to 77 percent of GDP (Annex III); public debt is already higher than Nordic peers.

### External sector
- A positive shift in the goods and services balance improved the 2023 current account.
- Despite flat export volumes in 2023, import volumes fell by 7 percent due to weak domestic demand.
- Terms-of-trade modestly deteriorated as export prices decreased more quickly than import prices.
- Primary income balance continued to weaken as investment income outflows increased after a sharp post-pandemic drop.
- Current account improved to -0.4 percent of GDP in 2023; data up to 2024Q3 suggest the current account will remain at a similar level.
- The external position for 2024 remains moderately weaker than the level implied by fundamentals and desirable policies (Annex IV).

### Macro-financial developments
- Domestic credit growth ticked up from -0.8 in October 2023 to 0.9 percent in October 2024, yoy.
- Lending rates on new bank loans have begun to decline.
- Tentative signs that house prices have stabilized, supported by a modest recovery in mortgage lending and increased residential real estate activity.
- Credit-to-GDP gaps and other credit indicators remain below trend, indicating no signs of growing upside cyclical risks.

### Financial sector resilience
- Bank credit portfolio quality deteriorated modestly; higher debt servicing costs and weaker growth led to an uptick in bankruptcies.
- Non-financial corporate (excluding housing companies) NPLs increased, especially in construction, but remain low in aggregate at 2 percent of total loans.
- Net interest margins and net income remain high, supporting profitability.
- Banking sector regulatory metrics in 2024Q2:
  - Tier 1 capital ratio surpassed 19 percent.
  - Leverage ratio was above 6 percent.
  - Liquidity coverage ratio stood at around 170 percent, on average.
- These metrics are above EU averages and exceed regulatory requirements.

### Outlook and key macroeconomic projections
- Growth expected to strengthen in 2025; growth in the final quarter of 2024 expected to have been positive but a large negative carry-over implies a slightly negative GDP outturn in 2024.
- Construction investment will recover slowly; increase in infrastructure and defense spending will support relatively strong investment growth from a low base.
- Private consumption will grow modestly as house prices stabilize and monetary policy eases, with lower interest rates expected to raise credit growth.
- A limited pick-up in external demand is expected, but its impact on net trade will be offset by stronger imports.
- HICP inflation is expected to return to around 2 percent in 2025 as energy prices stabilize.

Key Macroeconomic Indicators (Percent) — Source: IMF World Economic Outlook; and IMF staff calculations.
- 2022 GDP Growth: 1.5
- 2023 GDP Growth: -1.2
- 2024 GDP Growth: -0.3
- 2025 GDP Growth: 1.5
- 2026 GDP Growth: 1.5
- 2022 Output Gap (% of Potential GDP): 1.1
- 2023 Output Gap (% of Potential GDP): -0.9
- 2024 Output Gap (% of Potential GDP): -2.2
- 2025 Output Gap (% of Potential GDP): -1.5
- 2026 Output Gap (% of Potential GDP): -0.8
- 2022 Unemployment Rate: 6.8
- 2023 Unemployment Rate: 7.2
- 2024 Unemployment Rate: 8.3
- 2025 Unemployment Rate: 8.1
- 2026 Unemployment Rate: 7.9
- 2022 Inflation (avg): 7.2
- 2023 Inflation (avg): 4.3
- 2024 Inflation (avg): 1.0
- 2025 Inflation (avg): 2.0
- 2026 Inflation (avg): 2.0
- 2022 Current Account (% of GDP): -2.2
- 2023 Current Account (% of GDP): -0.4
- 2024 Current Account (% of GDP): -0.3
- 2025 Current Account (% of GDP): -0.4
- 2026 Current Account (% of GDP): -0.4

### Risks
- Risks are tilted to the downside; external downside risks dominate:
  - Escalation of Russia’s war in Ukraine.
  - Adverse shock in other Nordic countries, including in the real estate market.
  - Greater geoeconomic fragmentation.
  - Commodity price volatility.
  - Further tightening of global financial conditions.
- Domestic upside risks include faster recovery from higher investment and innovation from the green transition, expansion of the ICT sector, or stronger employment growth from recent reforms.
- Growth narrative: investment expected to recover but not return to pre-pandemic levels until 2027; external demand will recover but remain below the euro area average.

### Authorities’ views and stance
- Authorities acknowledge ongoing challenges and the anticipated slow recovery of the construction sector.
- They view the slight contraction projected for 2024 as a turning point with a nascent recovery ahead.
- Expect the impact of 2023 labor market reforms to become more apparent during the upward phase of the cycle.
- Note that lower inflation reflects a stabilization in prices that could help restore consumer confidence.
- Express cautious optimism for a gradual recovery in 2025 supported by private consumption and investment.
- Consider near-term risks to be tilted to the downside, and will remain vigilant regarding external risks; in the medium term they consider risks broadly balanced.

### Mission and administrative details
- Mission took place virtually (October 24–25, 2024) and in Helsinki, Finland (October 29–November 8, 2024).
- Team: Alex Pienkowski (head), Takuji Komatsuzaki, Theodore Renault, Mauricio Vargas, and Seyed Reza Yousefi (all EUR). Rohan Srinivas and Rachelle Vega (all EUR) assisted from headquarters. Ms. Karhapää (OED) joined discussions.
- Meetings included: Mr. Rehn, Governor of the Bank of Finland; Mr. Majanen, Permanent Secretary of the Ministry of Finance; Mr. Kurenmaa, head of the FIN-FSA; other senior officials; the ECB; representatives from the private sector, banks, labor unions, and other stakeholders.
- Approved By: Oya Celasun (EUR) and Martin Sommer (SPR).
- Date on document: December 12, 2024.

*International Monetary Fund — Finland: Mission report (December 12, 2024).*

### Box 1. The Downturn in Construction Investment

### Box 1. The Downturn in Construction Investment

### Key findings on the downturn
- The collapse in construction investment is the most severe since the early 1990s.
- Since early 2022, higher interest rates (with a high pass-through to mortgage rates) and weak economic conditions triggered a steep fall in real estate prices.
- This precipitated a collapse in real construction investment of around 20 percent, exceeding the decline in the GFC.
- High frequency indicators suggest that the construction cycle may have turned, but the strength of the recovery is highly uncertain.

### Historical cross-country evidence on recovery dynamics
- Historical cross-country experience suggests that the recovery in construction investment is likely to be long and slow.
- In Finland, the last major decline in construction investment started in 2010:
  - The initial recovery begun after 1½ years.
  - It took around 6 years to reach its previous peak.
- In a wider sample of European countries (sample period 1996Q1 to 2024Q1) where construction investment fell between 10 and 30 percent:
  - Most did not experience a recovery to previous peaks for at least 5 years.
  - This pattern suggests that the recovery in Finland could be long and slow.

### Factors affecting near-term prospects and upside potential
- Reasons for downside persistence:
  - Large fall in construction investment (around 20 percent).
  - High pass-through of higher interest rates to mortgage rates and weak economic conditions.
- Reasons for some optimism:
  - Absence of a financial crisis.
  - Little indication that house prices were substantially overvalued prior to the downturn.
  - These factors point to some upside potential in construction investment.

*Source: Box 1. The Downturn in Construction Investment (extracted from the provided PDF content).*

### 26.      Significant labor market reforms continue. In 2023, consistent with past staff advice,

### Significant labor market reforms continue. In 2023, consistent with past staff advice,

### Labor market reforms and outcomes
- 2023: Reforms aimed at boosting employment included changes to unemployment benefits, social security and tax adjustments, and enhancements to employment services.
- 2024: Government introduced measures to limit legal rights to take strike action and changes to govern pay increases in the collective bargaining process.  
- Assessment: The impact of the more recent labor-relations measures on competitiveness, wage flexibility, and employment are unclear.

### Participation, skills, and hours worked
- Finding: Participation rates are low among older individuals and younger people relative to Nordic peers (Figure 2 referenced in source).
- Policy responses suggested:
  - Advance recent measures to reduce avenues for early retirement.
  - Continue to enhance existing measures that provide targeted subsidies to incentivize employment.
  - Promote hiring of workers with reduced work capacity and older workers.
  - Strengthen integration and employment of immigrants via the Comprehensive Reform of Integration Act expected to enter into force in 2025.
  - Reduce skills mismatches and strengthen tertiary education; authorities plan to increase the proportion of young adults attaining higher education degrees to approximately 50 percent by 2030.
  - Improve the ‘Talent Boost’ program by better supporting integration (reducing linguistic and cultural barriers, and lowering bureaucratic hurdles).
- Concern: Recent steeper-than-trend fall in average hours worked. Declines are notable among younger people, low-skilled workers, and older, high-skilled female employees (Annex II).
- Additional policy focus: Enhance youth employment opportunities, foster active aging initiatives, and promote upskilling for low-skilled workers.

### Innovation, R&D, and productivity
- Strengths:
  - High levels of digitalization, R&D spending, and venture capital finance provide a strong foundation for business.
  - R&D expenditure is high by EU standards despite a multi-year decline.
  - Finland has a relatively large venture capital sector supported by public-sector investment funds and a large domestic pension industry.
- Weaknesses:
  - Weak productivity growth requires further focus on structural reforms.
  - Formation of high-growth firms (“Gazelles”) has slowed in recent years (Annex VIII).
  - Slower productivity growth at the frontier has been an important driver of the slowdown in aggregate productivity, particularly in the services sector (Annex IX).
- Policy considerations:
  - Revisit the tax treatment of venture capital funding and rebates associated with investment spending by firms.
  - Address barriers to entry that are more stringent in Finland compared with international best practices.
  - Protect productivity-enhancing spending—public investment, R&D support, and education—when consolidating fiscal policy.
  - Deepen the European Single Market to ease growth constraints.
  - Target regulation and entry barriers in the service sector where productivity has stagnated.

### Climate policy and carbon sinks (LULUCF)
- Finding: Increased tree lumbering in recent years has diminished the carbon sink in the Land Use, Land-use Change, and Forestry (LULUCF) sector and threatens compliance with the national objective of becoming carbon neutral by 2035 and country-specific EU targets.
- Policy options:
  - Restore the role of carbon sinks over the medium term via additional policy measures.
  - Consider taxes on lumbering, land-use change, and the burning of biomass.
  - Target emission reduction in other non-Emissions Trading System (ETS) sectors where marginal abatement costs are likely low in LULUCF.
  - Consider greater equalization of carbon taxes across sectors.
- Assessment: The objective of becoming carbon neutral by 2035 is unlikely to be met unless carbon sinks are strengthened.

### Outlook, fiscal stance, and public debt
- Near-term outlook:
  - Economic activity turned slightly positive in the first three quarters of 2024; output growth is projected to be slightly negative in 2024 due to a substantial negative “carry-over” from the previous year.
  - Activity is expected to rebound in 2025 bringing growth to around 1½ percent, supported by higher private consumption and a gradual recovery in investment.
  - Inflation is expected to increase to around 2 percent in 2025.
- Fiscal position:
  - Fiscal deficit reached 3 percent in 2023.
  - Public debt reached 77 percent of GDP in 2023.
  - New consolidation measures announced in Spring 2024, including an increase in VAT rates; full impact will not be realized until 2025.
  - Fiscal deficit expected to deteriorate further to 3.7 percent of GDP in 2024.
  - The cyclical recovery and recent fiscal measures are anticipated to help reduce the fiscal deficit by ½ percent in 2025.
  - Public debt is still expected to increase to nearly 90 percent of GDP by 2030.
  - Staff recommendation: Fiscal consolidation of ½ percent of GDP per year from 2025 to 2029 is needed to close the fiscal balance and put debt on a declining path. This requires additional concrete measures on both expenditure and revenue while protecting productivity-enhancing spending.

### Financial sector stability and macroprudential policy
- Strengths and vulnerabilities:
  - Banks have high capital and liquidity buffers and could withstand a severe recession scenario per stress tests.
  - Heavy reliance on short-term wholesale funding creates vulnerability to severe liquidity shocks.
  - Other vulnerabilities: high household debt and significant interconnectedness with other Nordic countries.
  - Persistent cyber-attacks targeted at financial institutions have been contained due to strong preparation and active countermeasures.
- Policy recommendations:
  - Enhance bank liquidity buffers and increase the stock of high-quality liquid assets.
  - Continue Finland’s initiative to lead a joint Nordic-Baltic banking sector stress test.
  - Reinstate and maintain macroprudential measures: staff welcomes the reinstatement of the SyRB to its pre-pandemic level.
  - Legislate a positive neutral rate on the CCyB, which could be released in periods of extreme stress.
  - Incorporate borrower-based measures such as debt-to -income and debt-service-to -income limits into the macroprudential toolkit.
  - Monitor financial stability risks associated with non-bank financial institutions, particularly real estate funds which have recently faced liquidity challenges.

### Authorities’ views (summarized)
- Emphasized importance of 2023 labor market reforms (unemployment benefits, social security, tax policies).
- Aim to raise participation rates among older individuals and address skills mismatches; target of approximately 50 percent higher education attainment by 2030 is endorsed.
- Concerned about decline in average hours worked; will explore policies promoting youth employment and upskilling.
- Noted strengths in digitalization, R&D, and venture capital but acknowledged weak productivity growth, especially in scaling startups.
- Acknowledged progress in emission reductions outside LULUCF but flagged significant challenges meeting LULUCF targets; Energy and Climate Strategy in early 2025 seen as an opportunity to revisit policy options.

*Source: 1finea2025001-print-pdf - 26.      Significant labor market reforms continue. In 2023, consistent with past staff advice,*

### 41.      It is proposed that the next Article IV consultation with Finland take place on the

### It is proposed that the next Article IV consultation with Finland take place on the standard 12-month cycle

### Real sector and growth dynamics
- GDP fell in 2023 due to shrinking inventories and an ongoing contraction in investment; positive real disposable income growth helped keep private consumption growth positive.
- Construction investment plummeted in 2023, with the decline persisting into 2024; high-frequency indicators signal a slowdown across all sectors, with construction experiencing a more pronounced deceleration.
- Weak demand appears to be holding back manufacturing and services output, while supply constraints have eased significantly.
- Key quarterly and annual growth figures (Table 1, selected):
  - GDP: 2021 = 2.7; 2022 = 1.5; 2023 = -1.2; 2024 = -0.3; 2025 = 1.5; 2026 = 1.5; 2027 = 1.4; 2028 = 1.3; 2029 = 1.2; 2030 = 1.2
  - Gross fixed capital formation: 2021 = 1.7; 2022 = 2.6; 2023 = -9.0; 2024 = -6.6; 2025 = 4.2; 2026 = 3.8; 2027 = 3.5; 2028 = 2.7; 2029 = 1.8; 2030 = 1.8
  - Private consumption: 2021 = 3.2; 2022 = 1.3; 2023 = 0.3; 2024 = -0.4; 2025 = 1.0; 2026 = 1.1; 2027 = 1.1; 2028 = 1.1; 2029 = 1.1; 2030 = 1.1

### Prices, incomes, and labor market
- Consumer price inflation (harmonized, average): 2021 = 2.1; 2022 = 7.2; 2023 = 4.3; 2024 = 1.0; 2025–2030 = 2.0 each year (2025 = 2.0; 2026 = 2.0; 2027 = 2.0; 2028 = 2.0; 2029 = 2.0; 2030 = 2.0).
- Consumer price inflation (harmonized, end-year): 2021 = 3.2; 2022 = 8.8; 2023 = 1.3; 2024 = 1.9; 2025–2030 = 2.0 each year (2025 = 2.0; 2026 = 2.0; 2027 = 2.0; 2028 = 2.0; 2029 = 2.0; 2030 = 2.0).
- Labor market indicators:
  - Participation Rate (15-74 years): 2021 = 67.0; 2022 = 68.0; 2023 = 68.6; 2024 = 68.9; 2025 = 69.3; 2026 = 69.6; 2027 = 70.1; 2028 = 70.5; 2029 = 70.9; 2030 = 71.4
  - Employment growth: 2021 = 2.4; 2022 = 2.6; 2023 = 0.3; 2024 = -1.1; 2025 = 0.5; 2026 = 0.4; 2027 = 0.5; 2028 = 0.6; 2029 = 0.6; 2030 = 0.6
  - Unemployment rate: 2021 = 7.6; 2022 = 6.8; 2023 = 7.2; 2024 = 8.3; 2025 = 8.1; 2026 = 7.9; 2027 = 7.8; 2028 = 7.6; 2029 = 7.4; 2030 = 7.3
- Structural and potential output:
  - Output gap (percent of potential output): 2021 = 1.0; 2022 = 0.6; 2023 = 1.1; 2024 = -0.9; 2025 = -2.2; 2026 = -1.5; 2027 = -0.8; 2028 = -0.5; 2029 = -0.3; 2030 = -0.2
  - Growth in potential output: 2021 = 0.9; 2022 = 0.9; 2023 = 0.9; 2024 = 0.9; 2025 = 0.8; 2026 = 0.8; 2027 = 1.0; 2028 = 1.1; 2029 = 1.1; 2030 = 1.0

- Labor market thematic findings:
  - Finland’s labor force participation rates outpace the euro area average but lag behind the Nordic region.
  - The employment rate experienced a modest decline after a consistent rise post-pandemic.
  - Participation rates of young people and older men are particularly low; the share of youth not in employment, education, or training is larger than Nordic peers.
  - Tertiary educational attainment among young adults is relatively low and has seen little improvement.
  - Recommendation: Increased spending on public employment services (PES) would help narrow the gap with peers.

### Financial conditions and credit
- Financial Conditions Index (FCI) developments:
  - Financial conditions in Finland eased in 2023 and 2024, by relatively more than the euro area median.
  - Easing was experienced across households, nonfinancial corporations (NFCs), and general government; the price of risk and policy stance were the most important drivers.
  - The final index chain covers most of the 2015–2024 period; 2024Q3 data are provisional.
- Domestic nonfinancial private sector credit growth (end-of-period): 2021 = 5.3; 2022 = 6.1; 2023 = 3.9 (Table 1).

### Real estate and housing markets
- House prices in Finland have fallen in real terms since 2022, with Finnish valuation measures relatively benign compared with the region; house prices appear to have stabilized with some early construction recovery in 2024.
- Commercial real estate (CRE) underwent a price correction, with retail and office segments facing strong headwinds.
- Selected indicators:
  - Price-to-Income Ratio and Price-to-Rent Ratio (Index, 2015=100) shown for 2019, 2022, 2023.
  - House Prices (Index, 3m average, 2015=100): series through Oct-24 shown for Whole country, Greater Helsinki, Rest of Finland.
  - Housing Construction (Units, YoY): permits granted, building starts, building completions series through 2024Q3.

### Banking sector soundness and structure
- The Finnish banking system is well capitalized and highly liquid, but relatively large and concentrated, with large real estate exposures and a heavy reliance on wholesale funding.
- Capitalization and profitability (selected):
  - CET1 and leverage ratios and Return on Equity series shown; Finland’s regulatory ratios and profitability indicators presented in comparison with euro area peers.
- Banking sector size (2023): total assets of foreign-controlled branches/subsidiaries and total consolidated assets of domestic banking groups shown as share of nominal GDP.
- Market funding structure (2023): ratio of credit institutions' deposits and debt securities to total liabilities presented.
- Real estate exposure share (Percent; domestic banks): Finland among others for 2023.
- Financial Soundness Indicators (Table 4, selected latest series 2024Q2):
  - Regulatory Capital to Risk-Weighted Assets: 20.7 (2023) then 22.0 (2024Q2)
  - Regulatory Tier 1 capital to Total assets: 6.1 (2023) then 5.8 (2024Q2)
  - Non-performing Loans to Total Gross Loans (2024Q2) = 1.4
  - Return on Assets (2024Q2) = 1.3; Return on Equity (2024Q2) = 16.0
  - Liquid Assets to Total Assets (Liquid Asset Ratio) (2024Q2) = 20.5
  - Customer Deposits as Percent of Total (non-interbank) Loans (2024Q2) = 62.4

### Household balance sheets and wealth
- Household indebtedness has declined in recent years but remains high by European standards; net financial assets (Percent of GDP) and household assets (Percent of GDP) are high relative to peers owing to a large stock of financial assets and significant non-financial—mainly housing—wealth.
- The recent increase in net wealth has been supported by an accumulation of cash and equity holdings and strong valuation gains.
- Selected metrics:
  - Financial liabilities (Percent of GDP) and household indebtedness rate (percent of net disposable income) series through 2024Q1.
  - Net Financial Assets (Percent of GDP) and Household Assets (Percent of GDP) series shown through 2023Q3–2024Q1.
  - Cumulative net financial transactions (Percent of 2019 GDP) and cumulative change in net financial wealth (Percent of 2019 GDP) series through 2023Q4.

### External sector and balance of payments
- Current account and external position (Table 2, selected):
  - Current account balance (percent of GDP): 2021 = 0.3; 2022 = -2.2; 2023 = -0.4; 2024 = -0.3; 2025 = -0.4; 2026 = -0.4; 2027 = -0.4; 2028 = -0.3; 2029 = -0.2; 2030 = -0.1
  - Exports of goods and services (billions of euros): 2021 = 99.3; 2022 = 122.7; 2023 = 117.0; 2024 = 116.7; 2025 = 120.0; 2026 = 123.4; 2027 = 127.1; 2028 = 131.1; 2029 = 135.2; 2030 = 139.4
  - Imports of goods and services (billions of euros): 2021 = 99.2; 2022 = 127.8; 2023 = 116.2; 2024 = 114.5; 2025 = 118.5; 2026 = 122.1; 2027 = 126.3; 2028 = 130.4; 2029 = 134.3; 2030 = 138.3
  - Net international investment position (percent of GDP): 2021 = 2.3; 2022 = 0.2; 2023 = 12.6; 2024 = 12.0; 2025 = 11.2; 2026 = 10.4; 2027 = 9.5; 2028 = 8.8; 2029 = 8.3; 2030 = 7.8
  - Gross external debt (percent of GDP): 2021 = 209.6; 2022 = 215.7; 2023 = 215.3; 2024 = 214.8; 2025 = 211.7; 2026 = 209.2; 2027 = 206.6; 2028 = 204.5; 2029 = 202.4; 2030 = 200.3
  - GDP at current prices (billions of euros): 2021 = 248.8; 2022 = 266.1; 2023 = 273.3; 2024 = 279.5; 2025 = 289.4; 2026 = 299.8; 2027 = 310.3; 2028 = 320.9; 2029 = 331.5; 2030 = 342.3

### Fiscal outlook and public finances
- General government dynamics (Table 3, selected, percent of GDP unless indicated):
  - Revenue: 2021 = 53.4; 2022 = 53.4; 2023 = 53.8; 2024 = 53.9; 2025 = 54.3; 2026 = 54.3; 2027 = 54.1; 2028 = 53.9; 2029 = 53.9; 2030 = 53.9
  - Expenditure: 2021 = 56.3; 2022 = 53.7; 2023 = 56.7; 2024 = 57.6; 2025 = 57.5; 2026 = 57.0; 2027 = 56.4; 2028 = 56.0; 2029 = 56.0; 2030 = 56.0
  - Net Lending/Borrowing: 2021 = -2.9; 2022 = -0.4; 2023 = -2.9; 2024 = -3.7; 2025 = -3.2; 2026 = -2.6; 2027 = -2.3; 2028 = -2.1; 2029 = -2.1; 2030 = -2.1
  - Primary Balance (percent of GDP): 2021 = -2.9; 2022 = -0.4; 2023 = -3.0; 2024 = -3.8; 2025 = -2.9; 2026 = -2.0; 2027 = -1.4; 2028 = -1.0; 2029 = -1.0; 2030 = -1.0
  - Structural Balance (percent of potential GDP): 2021 = -3.2; 2022 = -1.5; 2023 = -2.4; 2024 = -2.2; 2025 = -2.3; 2026 = -2.3; 2027 = -2.5; 2028 = -2.5; 2029 = -2.5; 2030 = -2.6
  - General Government Gross Debt (percent of GDP): 2021 = 73.1; 2022 = 73.9; 2023 = 77.0; 2024 = 81.6; 2025 = 84.2; 2026 = 85.3; 2027 = 85.9; 2028 = 86.6; 2029 = 87.4; 2030 = 88.2
  - Nominal GDP (billions of euros): see External section.

### Policy implications and recommendations highlighted in figures
- Support private consumption resilience while addressing weak investment through policies that revive construction investment and reduce sector-specific headwinds.
- Increase spending on public employment services (PES) to raise participation among young people and older men and reduce the share of youth not in employment, education, or training.
- Monitor financial conditions and the banking system’s reliance on wholesale funding and real estate exposures; maintain capital and liquidity buffers given the system’s size and concentration.
- Watch household indebtedness relative to high stock of financial and non-financial assets; assess risks from CRE price correction, particularly in retail and office segments.
- Fiscal stance: fiscal projections include measures as specified in the General Government Fiscal Plan; primary and structural balances remain negative through the projection horizon and general government gross debt rises to 88.2 percent of GDP by 2030 absent further measures.

*Source: IMF staff compilation and tables/figures as presented in the Finland Article IV consultation content unit.*

### Annex I. 10 Salient Facts on Finnish Growth

### Annex I. 10 Salient Facts on Finnish Growth

### Overview
- The annex summarizes Finland’s growth performance since 2011, using an organizing framework following Lopez-Garcia and other (2021).
- Real GDP growth has increased by only 7 percent since 2011, half that of the euro area.
- Labor’s contribution to growth was low in both Finland and the euro area; the divergence is driven by productivity developments.

### Salient Facts (1–10)
- Fact 1: Over the last decade, hours worked contributed little to GDP growth, while weak labor productivity growth drove the wedge with the euro area.
  - Real GDP growth: 7 percent since 2011.
  - Divergence from euro area driven by productivity rather than labor’s contribution.
- Fact 2: Finland remains a relatively rich country, with growth performance similar to well-off euro area countries but below peers outside the currency union.
  - Finland remains within the top quartile of richest countries in the euro area.
  - Growth has underperformed versus peers outside the currency union: the USA, Denmark, Sweden, Norway, Switzerland.
- Fact 3: Total hours worked broadly stable masks a steep decline in average hours per employee.
  - Had average hours remained at 2011 levels, potential output would have been around 3 percent higher, assuming constant employment and labor productivity.
- Fact 4: The fall in average hours was mainly driven by a decline in full-time hours.
  - The decline in full-time hours is slightly higher for men (5.2 percent) than females (4.2 percent).
  - Shift to greater (mainly female) part-time employment occurred, but most decline came from falling full-time hours.
- Fact 5: Labor force participation (and employment) has increased, but participation remains below Nordic peers.
  - Participation rate of 16–74 year-olds increased by over 3 percentage points since 2011.
  - Participation rates remain below Nordic peers, indicating potential for further progress.
- Fact 6: The decline in productivity was broad based across industries, though Finland remains relatively competitive in finance and the utility sectors.
  - The decline in mobile phone manufacturing was an important driver; most other industries also experienced stalled productivity growth.
- Fact 7: Productivity growth is primarily generated within industries (intensive margin) rather than from labor moving between industries (extensive margin).
  - Change in total hours worked in each industry over the last decade is very small.
- Fact 8: Finland has relatively high capital-to-GDP and capital-to-employee ratios.
  - Estimated capital stock has remained broadly stable as a share of GDP over the last two decades, at around the top quartile within the EU.
  - Capital per employee ratio, while trending up, has remained around the top quartile.
- Fact 9: Intellectual property is relatively high but declining; ICT capital is relatively low but increasing.
  - Intellectual property declined from 20 to 16 percent of GDP over the last decade.
  - ICT capital stock is low by European standards but has increased.
- Fact 10: Weak total factor productivity (TFP) growth accounts for Finland’s poor growth performance.
  - Catch-up by poorer European economies driven entirely by higher relative TFP growth; Finland’s positive ‘capital gap’ remained largely unchanged.
  - Large GDP gap with the USA is accounted almost entirely by TFP differences.

### Annex II — Declining Average Hours Worked: Key Findings
- Finland experienced one of the sharpest declines in average actual hours worked (AAHW) in the euro area after the pandemic.
- Between 2011 and 2022 (Household Survey micro-data for workers 15–64 receiving compensation and working >0 hours in survey week):
  - Number of employees grew by 8 percent since 2011.
  - Average hours worked per employee fell by around 3 percent.
  - Consequently, total hours worked in 2023 were only 5 percent higher than in 2011.
- AAHW dynamics and comparisons:
  - Finland’s AAHW in the main job declined by over 6 percent between 2011 and 2023, with 4 percentage points of this reduction occurring after the pandemic.
  - Prior to the pandemic, Finland’s AAHW was broadly similar to the euro area average and Sweden; since 2019 it has fallen much faster than peer countries.
  - AAHW remains somewhat higher than Denmark and Norway.
- Stylized demographic and employment patterns:
  - Both men and women experienced drops in working hours; decline for women in Finland was more pronounced and occurred mostly after 2020.
  - All age groups reduced AAHW; younger workers (15–34) faced the steepest decline, particularly after 2020.
  - Part-time workers saw significant AAHW declines across Nordic countries until the pandemic; post-pandemic Finland experienced a sharp drop in full-time workers' hours.
  - Self-employed workers saw larger AAHW declines than employees; post-pandemic employee decline worsened in Finland, unlike in the euro area and Nordics.
  - By education: upper secondary and tertiary educated workers consistently worked more hours, but post-2020 those with higher education saw notable reductions in hours.
- Shapley decomposition insights:
  - Pre-pandemic (2011–2020): high-skilled employees and full-time workers aged 50–64 increased AAHW; youngest and low-skilled workers had the highest cumulative declines.
  - Full-time self-employed workers accounted for much of the pre-pandemic drop in AAHW.
  - High-skilled employees' AAHW increased pre-pandemic while low-skilled employees' AAHW decreased.

*Source: Annex I. 10 Salient Facts on Finnish Growth (1finea2025001-print-pdf).*

### 7.      Drivers after the pandemic. In the gender and age decomposition, female workers,

### 7.      Drivers after the pandemic. In the gender and age decomposition, female workers,

### Summary of post-pandemic drivers of change in Average Actual Hours Worked (AAHW)
- Primary demographic drivers:
  - Female workers, 30 and older, drove much of the decline in AAHW.
  - Declines were also driven by the youngest and prime-working-age males (15–49 years old).
  - High-skilled females and males reversed previous positive trends, with sharp reductions in working hours post pandemic.
- Age-group reversals relative to pre-pandemic trends:
  - Female 15–29: AAHW was declining before the pandemic but has shown a slight increase since.
  - Female 50–64: Strong increases in AAHW pre-pandemic, followed by a sharp decline post-pandemic.
  - Older workers, particularly females in the 50–64 age group, experienced sharp reductions in AAHW in 2020–2022.
- Employment-type dynamics:
  - Sharp decline in full-time employee hours post-pandemic.
  - Part-time employee workers saw increases in AAHW.
  - Part-time self-employed workers demonstrated some resilience during this period.
  - Self-employed workers showed resilience post-pandemic but also faced long-term declines in AAHW.

### Selected numeric decompositions and chart values (as presented)
- Gender × age full-time/part-time decomposition values (selected series):
  - -0.55
  - -0.06
  - -0.05
  - 0.04
  - 0.25
  - -0.05
  - -0.53
  - -0.05
  - -0.3
  - 0.05
  - 0.44
  - -0.01
  - -0.82
  - -1.4
  - -1.2
  - -1
  - -0.8
  - -0.6
  - -0.4
  - -0.2
  - 0
  - Total (label included)
- Skill × employment-condition Shapley decomposition values (selected series):
  - -0.42
  - -0.91
  - -0.21
  - -0.07
  - 0.05
  - 1.12
  - -0.1
  - -0.9
  - -0.15
  - -0.93
  - 0.24
  - 1.43
  - -0.85
  - -3
  - -2.5
  - -2
  - -1.5
  - -1
  - -0.5
  - 0
- Additional charted values (selected):
  - -0.08
  - -0.16
  - 0.03
  - -0.09
  - -0.23
  - -0.06
  - 0.12
  - -0.21
  - -0.43
  - -1.33
  - -0.41
  - 0.06
  - -0.39
  - -0.02
  - 0.09
  - 0.04
  - 0.06
  - -0.37
  - 0.11
  - -0.49
  - 0.05
  - -1.23
- Time periods explicitly analyzed and reported:
  - Annual changes from 2010 to 2022, with accumulated changes for: 2011-2020, 2020-2022, and 2011-2022.
- Age groups and worker condition categories used repeatedly:
  - Age groups: 15–29, 30–49, 50–64.
  - Worker condition: Full-time, Part-time, Self-employed, Employee.
  - Skill/education groups: Prim./Lower Sec., Upper/Post Sec., Tertiary.

### Findings on work-hour preferences
- Gap between desired and usual hours:
  - Minimal across genders overall.
  - Younger workers generally prefer to increase hours; older workers prefer to work less.
  - Part-time workers predominantly seek more hours (unmet demand for full-time opportunities).
  - Self-employed frequently express preference for fewer hours.
  - Low- and mid-skilled workers typically desire additional hours.
  - High-skilled workers, particularly full-time, often lean towards reducing working hours.
- Charted series on gaps by education, job condition, gender, and age are presented for 2011–2022 (weekly hours).

### Policy implications and recommended interventions (explicitly listed)
- Boost youth employment opportunities:
  - Expand vocational training, apprenticeships, and job-placement programs to bridge skills gaps and provide younger workers with more stable, full-time employment opportunities.
- Support for full-time workers:
  - Make full-time employment more attractive via flexible scheduling options and productivity-based incentives tied to performance rather than hours.
  - Conduct analysis of productivity differentials between part-time and full-time workers to inform targeted measures.
- Female workforce re-engagement:
  - Facilitate re-engagement of older women (50–64) through flexible work arrangements, affordable reskilling programs, and return-to-work schemes offering tailored options to expand hours or take new roles.
- Targeted support for low-skilled workers:
  - Expand upskilling and lifelong learning programs to provide pathways to higher-paying, more stable jobs.
- Promote resilience for the self-employed:
  - Boost job stability for self-employed individuals and provide financial support programs to enhance productivity and working hours.
- Encourage active aging in the workforce:
  - Implement active aging policies including incentives for continued work, phased retirement schemes, or flexible working options for older workers.

### Analytical notes and methods
- The Shapley decomposition implemented follows the methodology described in Azevedo et al. 2013 (methodology referenced for decomposition).
- Data sources:
  - Eurostat Labor Force Surveys; and IMF staff calculations.
- Decompositions presented include breakdowns by:
  - Gender and age group.
  - Full-time/part-time status and job condition (self-employed vs. employee).
  - Education level and age group.
  - Education level and job condition.
  - Gender and education level.

*Source: IMF staff analysis based on Eurostat Labor Force Surveys and IMF staff calculations (figures, decompositions, and recommendations as presented in the source content).*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Public debt structure indicators
- Debt by Currency (Percent of GDP): projection series presented for 2014–2034 showing composition by Foreign currency, Local currency, Local-linked (chart only).
- Public Debt by Holder (Percent of GDP): series for 2014–2022 with categories External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks, Domestic central bank (chart only).
- Public Debt by Instruments (Percent of GDP): marketable debt vs nonmarketable debt (chart only).
- Public Debt by Maturity (Percent of GDP): maturity buckets shown for 2019–2029 with ≤ 1 year, 1-5 years, > 5 years; residual maturity: 6. years (chart only).

### Baseline scenario: debt projection and drivers (Percent of GDP unless indicated otherwise)
- Public debt levels (Actual and projected):
  - 2023: 77.0
  - 2024: 81.6
  - 2025: 84.2
  - 2026: 85.3
  - 2027: 85.9
  - 2028: 86.6
  - 2029: 87.4
  - 2030: 88.2
  - 2031: 89.1
  - 2032: 90.1
  - 2033: 91.1
- Change in public debt (year-on-year):
  - 2024: 4.6
  - 2025: 2.6
  - 2026: 1.0
  - 2027: 0.6
  - 2028: 0.8
  - 2029: 0.8
  - 2030: 0.7
  - 2031: 0.9
  - 2032: 1.0
  - 2033: 1.0
- Contribution of identified flows (year-on-year):
  - 2024: 5.0
  - 2025: 2.9
  - 2026: 0.5
  - 2027: 0.5
  - 2028: 0.5
  - 2029: 0.8
  - 2030: 0.9
  - 2031: 1.0
  - 2032: 1.0
  - 2033: 1.0
- Primary deficit (percent of GDP):
  - 2023: 3.0
  - 2024: 3.8
  - 2025: 2.9
  - 2026: 2.0
  - 2027: 1.4
  - 2028: 1.0
  - 2029: 1.0
  - 2030: 1.0
  - 2031: 1.0
  - 2032: 1.0
  - 2033: 1.0
- Noninterest revenues (percent of GDP):
  - 2023: 52.6
  - 2024: 52.5
  - 2025: 53.0
  - 2026: 53.2
  - 2027: 53.0
  - 2028: 52.8
  - 2029: 52.8
  - 2030: 52.8
  - 2031: 52.8
  - 2032: 52.8
  - 2033: 52.8
- Noninterest expenditures (percent of GDP):
  - 2023: 55.6
  - 2024: 56.3
  - 2025: 56.0
  - 2026: 55.2
  - 2027: 54.3
  - 2028: 53.8
  - 2029: 53.8
  - 2030: 53.8
  - 2031: 53.8
  - 2032: 53.8
  - 2033: 53.8
- Automatic debt dynamics (contribution, percent of GDP):
  - 2023: -0.8
  - 2024: -0.1
  - 2025: -0.7
  - 2026: -0.4
  - 2027: 0.2
  - 2028: 0.6
  - 2029: 0.9
  - 2030: 1.0
  - 2031: 1.1
  - 2032: 1.1
  - 2033: 1.1
- Real interest rate and relative inflation (contribution):
  - 2023: -1.6
  - 2024: -0.4
  - 2025: 0.5
  - 2026: 0.9
  - 2027: 1.4
  - 2028: 1.7
  - 2029: 2.0
  - 2030: 2.1
  - 2031: 2.2
  - 2032: 2.2
  - 2033: 2.2
- Real growth rate (contribution):
  - 2023: 0.9
  - 2024: 0.3
  - 2025: -1.2
  - 2026: -1.3
  - 2027: -1.2
  - 2028: -1.1
  - 2029: -1.0
  - 2030: -1.0
  - 2031: -1.1
  - 2032: -1.1
  - 2033: -1.1
- Other identified flows (percent of GDP):
  - 2023: 1.2
  - 2024: 1.3
  - 2025: 0.7
  - 2026: -1.2
  - 2027: -1.1
  - 2028: -1.1
  - 2029: -1.1
  - 2030: -1.1
  - 2031: -1.1
  - 2032: -1.1
  - 2033: -1.1
- Contingent liabilities (percent of GDP): 0.00 for 2023–2033.
- Interest revenues (percent of GDP, negative contribution):
  - 2023: -1.3
  - 2024: -1.5
  - 2025: -1.2
  - 2026: -1.2
  - 2027: -1.1
  - 2028: -1.1
  - 2029: -1.1
  - 2030: -1.1
  - 2031: -1.1
  - 2032: -1.1
  - 2033: -1.1
- Other transactions (percent of GDP):
  - 2023: 2.5
  - 2024: 2.8
  - 2025: 1.9
  - 2026–2033: 0.0
- Contribution of residual (percent of GDP):
  - 2023: -0.3
  - 2024: -0.4
  - 2025: -0.3
  - 2026: 0.5
  - 2027: 0.1
  - 2028: 0.3
  - 2029: 0.0
  - 2030: -0.2
  - 2031: -0.1
  - 2032: 0.0
  - 2033: 0.0
- Gross financing needs (percent of GDP; average baseline noted elsewhere):
  - Time-series values include 15.0, 10.6, 17.2, 17.2, 18.9, 21.0, 22.5, 21.4, 16.7, 17.4, 17.5 (chart layout).
- Of which: debt service (percent of GDP) series shown with values including 13.3, 8.2, 15.6, 16.4, 18.6, 21.0, 22.6, 21.5, 16.8, 17.5, 17.6 (chart layout).
- Local currency vs Foreign currency debt service: Local currency series presented; Foreign currency series shown as 0.0 for many projected years (chart layout).
- Memo indicators:
  - Real GDP growth (percent): -1.2 (actual), then -0.3, 1.5, 1.5, 1.4, 1.3, 1.2, 1.2, 1.2, 1.2, 1.2.
  - Inflation (GDP deflator; percent): 3.9, 2.6, 2.0, 2.1, 2.1, 2.1, 2.1, 2.1, 2.1, 2.1, 2.1.
  - Nominal GDP growth (percent): 2.7, 2.3, 3.5, 3.6, 3.5, 3.4, 3.3, 3.3, 3.3, 3.3, 3.3.
  - Effective interest rate (percent): 1.6, 2.1, 2.7, 3.2, 3.7, 4.1, 4.4, 4.5, 4.6, 4.6, 4.5.

- Commentary: "Public debt is expected to continue growing in the medium and long term. This growth is mainly driven by recurrent primary deficits, which more than offsets the impact of stable positive growth."

### Realism of baseline assumptions and fiscal adjustment
- Realism analysis: "Realism analysis does not point to major concerns as the projected fiscal adjustment and debt reduction are well within norms."
- Forecast track record and comparator group analysis include metrics for Public debt to GDP, Primary deficit, r - g, and Exchange rate depreciation with percentile color coding (chart only).
- 3-year debt reduction distribution: Max. 3-year reduction above 75th percentile is 5.9 ppts of GDP; percentile rank 23.6 (chart annotations).
- 3-year adjustment in cyclically-adjusted primary balance: 3-year adjustment above 75th percentile (2 ppts of GDP); percentile rank 65 (chart annotations).
- Fiscal adjustment and possible growth paths: scenarios include Baseline, Multiplier=0.5, Multiplier=1 (chart only).

### Medium-term risk assessment
- Debt fanchart module:
  - Fanchart width: 33.4 0.5 (percent of GDP) (table/chart layout).
  - Probability of debt non-stabilization (percent): 6.1 0.1 (table/chart layout).
  - Terminal debt-to-GDP x: 9.0 0.2 (table/chart layout).
  - Debt fanchart index (DFI): 0.7
  - Risk signal: 3/Low
- Gross financing needs (GFN) module:
  - Average baseline GFN (percent of GDP): 17.9 6.1 (table/chart layout).
  - Initial Banks' claims on the gen. govt (pct bank assets): 3.1 1.0
  - Change in banks' claims in stress (pct banks' assets): 0.00 0.0
  - GFN financeability index (GFI): 7.1
  - Risk signal: 4/Low
- Medium-term index (aggregate):
  - Debt fanchart index: 0.7
  - GFN financeability index: 7.1
  - Medium-term index value: shown (chart layout)
  - Risk signal: Final assessment: "Prob. of missed crisis, 2024-2029, if stress not predicted: 0.0 pct. Prob. of false alarms, 2024-2029, if stress predicted: 70.5 pct."
- Commentary: "Medium-term analysis points to a low risk in both modules."

### Annex IV — External Sector Assessment: overall findings and projections
- Overall Assessment: "The external position of Finland in 2024 is estimated to be moderately weaker than the level implied by fundamentals and desirable policies."
- Policy implication: "Fiscal consolidation remains the key tool for improving the external position."
- Competitiveness and productivity note: "Finland's cost competitiveness strengthened during the 2010s, however, it has experienced a decline since 2020. With Finland’s ongoing challenge of sluggish productivity, which could benefit from labor market reforms, it remains crucial that wage increases align closely with productivity gains."

### Foreign assets and liabilities: position and trajectory
- NIIP and gross external debt:
  - NIIP strengthened in 2023 to 12.6 percent of GDP driven by valuation gains of portfolio investment assets.
  - As of 2024Q2, NIIP has risen further but is projected to be around 12 percent of GDP by end-2024.
  - Gross external debt: 210 percent of GDP in 2021; projected to reach 215 percent in 2024.
- 2024 (est., percent GDP) snapshot:
  - NIIP: 12.0
  - Gross Assets: 332
  - Debt Assets: 51
  - Gross Liab.: 320
  - Debt Liab.: 109
- Assessment: Vulnerabilities stem from large cross-border exposures of the financial sector, including liquidity risk related to foreign-financed wholesale funding.

### Current account: recent developments and projections
- Recent outcomes:
  - Current account deficit contracted in 2023 to around 0.4 percent of GDP.
  - In the first three quarters of 2024, the accumulated current account balance was close to zero.
- Drivers: Improvement in 2023 driven by a significant reduction in imports; primary income balance moderated to about 0.3 percent of GDP in 2023.
- Projection: Projected 2024 current account deficit is estimated at 0.3 percent of GDP.
- Near-term outlook: "The current account is projected to remain in deficit in the near-term, due a less favorable external environment, with a slight improvement over the medium term, supported by fiscal consolidation, stronger external growth, and measures aimed at preserving cost competitiveness, despite adverse demographic and labor productivity trends."
- Model-based assessment (EBA methodology):
  - Cyclically-adjusted CA: -1.0 percent of GDP
  - CA norm: 0.6 percent of GDP
  - Staff estimate of CA gap for 2024: -1.6 percent (with a range -1.0 and -2.2)
    - Of which relative policy gap: 0.7 percentage points
    - Unidentified residual: -2.3 percentage points
  - Conclusion: "external position in 2024 is moderately weaker than the level implied by medium-term fundamentals and desirable policies."

### Real Exchange Rate (REER) and REER gap
- ULC-based REER developments:
  - By 2024Q3, ULC-based REER had increased by 20 percent compared to early 2020, though still 2 percent below its 2023 peak.
- CPI-based REER developments:
  - CPI-based REER experienced a 7 percent depreciation between 2020 and 2022Q3, followed by an equivalent appreciation by 2024Q3.
- Staff CA gap implies a REER gap of 4.8 percent (after applying an estimated elasticity of -0.33) and a range of 3.0–6.7.
- EBA REER-gap index and level models suggest overvaluation of about 7.7 and 4.1 percent, respectively.
- Model table highlights:
  - CA-Estimate: -0.3
  - Cyclical contributions (from model) (-): 0.7
  - Adjusted CA: -1.0
  - Adjusted CA Norm: 0.6
  - CA Gap: -1.6 to -2.5
  - Elasticity: -0.33
  - REER Gap (in percent): 4.8, 7.7

### Capital and financial accounts; reserves and FX intervention
- Financial account:
  - Deteriorated slightly to -2.3 percent of GDP in 2023 driven by lower other investment assets and net FDI outpacing improvements in net portfolio investment and net financial derivatives.
  - Financial account showed a deficit during the first three quarters of 2024.
  - Gross external debt remained around 215 percent of GDP in 2023.
- Vulnerabilities: large financial sector relying on foreign wholesale funding (banking sector exceeds three times the country's GDP); significant fluctuations in capital flows and net errors and omissions in BOP statistics.
- Assessment: "Finland has a fully open capital account. It remains exposed to financial market risks against the background of interconnected regional financial markets."
- FX intervention and reserves:
  - Background: "The euro has the status of global reserve currency."
  - Assessment: "The currency is freely floating."

_Source: IMF staff estimates and projections as presented in the chapter "5. Debt consolidation across sectors:"_

### Annex V. Risk Assessment Matrix

### Annex V. Risk Assessment Matrix

### Global risks
- Intensification of regional conflicts
  - Relative likelihood: High
  - Impact if realized: High
  - Description: Escalation or spread of the conflict in Gaza and Israel, Russia’s war in Ukraine, and other regional conflicts or terrorism disrupt trade (e.g., energy, food, tourism, supply chains), remittances, FDI and financial flows, payment systems, and increase refugee flows.
  - Consequences if realized: The intensification of the conflict provokes a further decline in economic activity, weakening investment and growth and worsening financial conditions. The fiscal stance deteriorates due to the working of automatic stabilizers. Banks’ asset quality deteriorates, leading to capital shortfalls, and funding costs rise for corporate borrowers, reducing credit availability.
  - Policy response:
    - Provide targeted fiscal support to cushion the impact on households.
    - Support firms to preserve the jobs that will be viable and prevent liquidity problems from triggering defaults and bankruptcies.

- Monetary policy calibration
  - Relative likelihood: Medium
  - Impact if realized: Medium
  - Description: Amid high uncertainty and data surprises, major central banks’ stances turn out to be too loose, hindering disinflation, or too tight for longer than warranted, which stifles growth.
  - Consequences if realized: A resurgence of inflation could lead to a wage-price spiral and erode central bank credibility. Conversely, a too tight policy may delay the recovery in the construction sector and intensify spillovers to households and firms through higher debt service, liquidity shortfalls, and reduced demand.
  - Policy response:
    - Stand ready to adjust fiscal policy to support growth while avoiding inflationary pressures.
    - Safeguard financial stability.

- Commodity price volatility
  - Relative likelihood: High
  - Impact if realized: High
  - Description: Supply and demand fluctuations (e.g., due to conflicts, export restrictions, OPEC+ decisions, and green transition) cause recurrent commodity price volatility, external and fiscal pressures and food insecurity in EMDEs, cross-border spillovers, and social and economic instability.
  - Consequences if realized: Rising energy prices and a resurgence in inflation would place pressure on the economy, eroding households’ disposable income under the weight of increased costs.
  - Policy response:
    - Implement targeted fiscal policies to support households, preserving domestic demand while minimizing inflationary pressures.

- Global growth slowdown
  - Relative likelihood: Medium
  - Impact if realized: Medium
  - Description: Slowdown including due to supply disruptions, tight monetary policy, rising corporate bankruptcies, or a deeper-than-envisaged real estate sector contraction, with adverse spillovers through trade and financial channels.
  - Consequences if realized: The response by central banks to rein in inflation leads to higher borrowing costs, which ultimately cause lower demand and a slowdown in domestic activity.
  - Policy response:
    - Allow automatic stabilizers to operate. The fiscal policy should be used to support the most vulnerable.
    - Employ macro-prudential tools to mitigate financial stability risks.

- Deepening geoeconomic fragmentation
  - Relative likelihood: High
  - Impact if realized: High
  - Description: Broader conflicts, inward-oriented policies, and weakened international cooperation result in a less efficient configuration of trade and FDI, supply disruptions, protectionism, policy uncertainty, technological and payments systems fragmentation, rising shipping and input costs, financial instability, a fracturing of international monetary system, and lower growth.
  - Consequences if realized: Higher input costs, supply disruptions and changed trade patterns generate transition costs and ultimately may result in lower real incomes and lower firm profitability.
  - Policy response:
    - In collaboration with international partners, continue to strengthen global cooperation and multilateralism.
    - Enhance supply chain resilience by promoting diversification.
    - Accelerate structural reforms to increase economic flexibility and help sectors better absorb and adapt to shocks.

- Cyberthreats
  - Relative likelihood: High
  - Impact if realized: Medium
  - Description: Cyberattacks on physical or digital infrastructure and service providers or misuse of AI technologies trigger financial and economic instability.
  - Consequences if realized: Economic activity is disrupted, leading to weaker confidence, capital outflows, and financial sector volatility.
  - Policy response:
    - Continue to raise public awareness through targeted preparedness campaigns.
    - Strengthen investments in cyber defense to enhance resilience against evolving threats.
    - Utilize the banking backup payment system.

### Regional and domestic risks
- Adverse shock in a neighboring Nordic country
  - Relative likelihood: Medium
  - Impact if realized: High
  - Description: Leading to a downturn in the real estate markets, and distress in the financial sector.
  - Consequences if realized: Lower demand from trading partners reduces domestic output and employment. Financial sector sees declining asset quality and funding difficulties.
  - Policy response:
    - Conduct regular Nordic-wide financial stress tests.

- Systemic financial instability
  - Relative likelihood: Medium
  - Impact if realized: High
  - Description: Systemic risks rise further given lower growth and a protracted recovery. The current correction in the housing and CRE markets and/or adverse shock in a neighboring Nordic country could distress the financial sector given close interlinkages across the Nordic financial system.
  - Consequences if realized: A higher marked downturn in real estate prices in Finland or the Nordics adversely affect financial conditions, given high household debt and variable rate mortgages, and close linkages of the banking system. Financial sector sees declining asset quality, and lending will be curtailed if doubts about the quality of covered bonds rise elevating bank funding costs.
  - Policy response:
    - Continue to closely monitor risks, including those related to households’ creditworthiness, cross-border macro-financial exposures, and liquidity conditions.
    - Strengthen liquidity regulations and enhance banks' liquidity buffers to mitigate systemic liquidity risks.

- Social discontent
  - Relative likelihood: Low
  - Impact if realized: Medium
  - Description: Slower than expected real income recovery, spillovers from conflicts (including migration), and worsening inequality, cause social unrest and detrimental populist policies. This exacerbates imbalances, slows growth, and leads to policy uncertainty and market repricing.
  - Consequences if realized: The economy has shown resilience to recent challenges, with limited social discontent from the war in Ukraine due to broad support. Recent labor market reforms have faced some implementation resistance, which could add to social discontent.
  - Policy response:
    - Provide targeted support to mitigate the impact of higher living costs on the most vulnerable.
    - Continue constructive dialogues among the stakeholders.

### Risk Assessment Matrix (RAM) note
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenario highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon.

*Annex V. Risk Assessment Matrix — FINLAND INTERNATIONAL MONETARY FUND*

### 2.      Relative to the EU, gazelle births have remained modest in Finland. The creation of

### 2.      Relative to the EU, gazelle births have remained modest in Finland. The creation of such firms remained broadly unchanged from 2008 to 2018, underperforming the notable growth in the EU. This trend has been observed across all sectors including high-tech industries and in information and communication technology (ICT).

### Gazelle births and performance (2008–2018)
- Time coverage: firm-level data from Moody’s Orbis database, covering 2008 to 2018.
- Finding: The creation of gazelle firms in Finland remained broadly unchanged from 2008 to 2018 and underperformed the notable growth in the EU.
- Sectoral observation: The underperformance holds across all sectors, including high-tech industries and ICT.
- Empirical measures presented (figures in source): indexed series to 2008 (equal to 100) and adjusted for right censoring; number of gazelles post-2011 adjusted based on observation timing following the 2008–2011 cohort distribution.

### Leverage and interest rates for Finnish gazelles
- Finding: Finnish gazelles are relatively under-leveraged compared with evidence from the United States and many other European countries where gazelles are significantly more leveraged than larger firms (Adilbish and others, 2024).
- Implication: Low leverage suggests Finnish gazelles may face challenges in accessing capital to scale, potentially hurting growth.
- Definition: Leverage is defined as the sum of loans and long-term debt as percent of total assets. Outliers including the largest 5 percent observations and those with negative values are excluded.
- Interest rates: Empirical analysis indicates Finnish gazelles do not typically face higher interest rates; they typically face costs comparable to large non-gazelle firms.
- Survey evidence: A recent ETLA survey finds cost of financing is not typically a major obstacle for corporates in Finland; top concerns instead include availability of staff, energy costs, and economic uncertainty.

### Venture capital (VC) and private equity (PE) financing
- Comparative finding: Europe remains significantly less developed in VC relative to the United States and Sweden, but Finland fares relatively well in access to VC financing.
- Public providers: Finnvera and Tesi are major public providers of funding in Finland.
- Private equity intensity: Total PE in Finland was around 0.75 percent of GDP, close to the EU average but behind Sweden at 1.1 percent of GDP.
- Funding structure implication: VC funding rather than buyouts remains a major source of funding in Finland; fewer and smaller buyouts restrict broader access to funding.
- Empirical note: Adilbish and others (2024) show European VC-backed gazelles tend to outperform those without such support.

### Tax treatment and policy levers to improve access to risk capital
- Current tax treatment issue for foreign VC limited partnerships: Foreign investors in Finnish VC are set up as limited partnerships and current tax treatment requires they pay taxes in advance and then are only partially rebated for investment spending after two to three years.
- Domestic VC disadvantage: Returns for limited partnership domestic VCs are taxable, whereas returns for domestic non-profit investors in foreign VCs are tax-exempt.
- Recommendation: Review these potential tax-treatment differences to better support VC financing and investment.

### Single Market and cross-border capital proposals
- EU-level recommendation: Further deepening of the Single Market would help alleviate growth constraints by expanding the scale and scope of VC funds across Europe.
- Harmonization: Harmonization of VC regulations is critical to support investment in larger funds.
- Role for EIF: An enhanced role for the European Investment Fund (Euro Area Policies Article IV, 2024) in catalyzing investment and providing due diligence would be beneficial.
- Pensions portability: Improving the portability of pensions would help create a larger pool of cross-border, long-term capital.
- Labor supply: Offsetting demographic headwinds to human capital and improving availability of young high-skilled workers is crucial to foster gazelle formation.

### Annex IX — Firm-level productivity trends in Finland (2010–2019)
- Objective: Analyze firm-level dynamics underlying weak labor productivity growth in Finland since 2010 using Orbis firm-level data.
- Aggregate productivity: Finland’s private sector labor productivity dipped after the Global Financial Crisis and has been stagnant since then.
- Aggregate numeric outcomes:
  - Aggregate private-sector labor productivity: only 6 percent cumulative gain between 2010 and 2019; laggards accounted for the bulk of this, mainly since 2016.
  - Frontier firms: accounted for less than 10 percent of employment and delivered about 10 percent cumulative productivity growth over the decade.
  - Laggards: roughly 5 percent cumulative labor productivity growth over the same period.
- Frontier vs laggards:
  - Frontier firms enjoyed twice the labor productivity gains of laggards over the last decade, but frontier firms were too small to lift aggregate productivity.
  - Compared with Nordic peers, frontier firms’ productivity grew significantly slower in Finland than in Denmark and Sweden (measured by value added or operating turnover per employee).
- Sectoral patterns (2010–2019):
  - High-tech sector cumulative productivity gain: 14 percent.
  - Non-tech manufacturing cumulative productivity gain: 8 percent.
  - Leading firms in these sectors: productivity surged by 35 percent (high-tech) and 26 percent (non-tech manufacturing).
  - Non-tech services: both frontier and laggard firms experienced negligible productivity growth; productivity in non-tech services has been particularly sluggish and weighed on aggregate labor productivity.
- Policy implication: There could be scope to promote innovation and competition by easing administrative barriers to entry, especially in the services sector.
  - Evidence: Regulatory barriers are high relative to Denmark and Sweden, with stringency in services (particularly retail distribution) and some network sectors (transport, e-communications).
  - Expected effects: Easing barriers could facilitate exit of less productive firms, entry of more productive firms, and ultimately benefit labor productivity growth.

*Source: IMF staff analysis using Orbis; related findings and references as presented in the provided content unit.*

### Annex X. Data Issues

### Annex X. Data Issues

### Data Standards and Participation
- Finland adheres to the Special Data Dissemination Standard (SDDS) Plus since June 2018 and publishes the data on its National Summary Data Page.
- The latest SDDS Plus Annual Observance Report is available on the Dissemination Standards Bulletin Board (https://dsbb.imf.org/).

### Data Adequacy Assessment (Summary and Rationale)
- Overall assessment: The data provided to the Fund are adequate for surveillance.
- Rationale for staff assessment:
  - Data provided by Statistics Finland, Bank of Finland and the Ministry of Finance, and other national sources are adequate for surveillance.
  - Relatively large sizes of stock-flow adjustments in Finland mainly reflect surpluses in its pension fund, and do not imply statistical shortcomings.
  - The consistency of External Sector statistics is currently assessed as "B," taking into account the significant errors and omissions in BOP estimates, which average around 2 percent of GDP over the previous decade.
- Detailed notes:
  - Use of data and/or estimates in Article IV consultations in lieu of official statistics available to staff: Staff does not use any data and/or estimates in the staff report in lieu of official statistics.
  - Other data gaps: Not applicable.
  - Changes since the last Article IV consultation: No new data weaknesses have been identified since the last Article IV consultation.
  - Corrective actions and capacity development priorities: Not applicable.

### Data Quality Characteristics and Sectoral Ratings (as presented)
- Median Rating: AAAAAAA
- Sectoral assessments (labels preserved as in source):
  - National Accounts: CoverageAAAAA ; Consistency ABA ; Frequency and Timeliness AAAAA
  - Prices: AAAA
  - Government Finance Statistics: AAAA ; Granularity A (note on top/bottom granularity cells in source)
  - External Sector Statistics: AA ; Consistency B
  - Monetary and Financial Statistics: AA ; Granularity A/A (top cell for Monetary and bottom for Financial Soundness indicators)
  - Inter-sectoral Consistency: C ; Frequency and Timeliness D
- Data Adequacy Assessment Rating (overall): A
- Questionnaire Results: Assessment: Detailed Questionnaire Results (as indicated; detailed heatmap/table entries in source)

### Table of Common Indicators Required for Surveillance (metadata)
- Date of latest observation, Date received, Frequency of data, Frequency of reporting, Expected frequency, Expected timeliness: entries as in Table 3 (as of November 27, 2024).  
- Examples of series listed in the table (labels preserved): Exchange Rates; International Reserve Assets and Reserve Liabilities of the Monetary Authorities; Reserve/Base Money; Broad Money; Central Bank Balance Sheet; Consolidated Balance Sheet of the Banking System; Interest Rates; Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing ‒ General Government; Revenue, Expenditure, Balance and Composition of Financing ‒ Central Government; International Investment Position; Stocks of Central Government and Central Government-Guaranteed Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt.
- Frequency and timeliness codes explained in source: (“D”) daily; (“W”) weekly or with a lag of no more than one week after the reference date; (“M”) monthly or with lag of no more than one month after the reference date; (“Q”) quarterly or with lag of no more than one quarter after the reference date; (“A”) annual.; ("SA") semiannual; ("I") irregular; ("NA") not available or not applicable; and ("NLT") not later than.

### Key Data-Related Findings Relevant for Surveillance and Policy
- External Sector: Errors and omissions in BOP estimates average around 2 percent of GDP over the previous decade, contributing to the "B" assessment for consistency.
- Stock-flow adjustments: Relatively large sizes mainly reflect surpluses in Finland's pension fund and are not interpreted as statistical shortcomings.
- Publication and data provision: Finland publishes required indicators under the Data Standards Initiatives through the National Summary Data Page. Entries based on information from the Summary of Observance for SDDS and SDDS Plus participants and the Summary of Dissemination Practices are reflected in the table.

*Source: Annex X. Data Issues, 1finea2025001-print-pdf - Annex X. Data Issues (As of November 27, 2024).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1finea2025001-print-pdf.pdf_