Washington, DC: On January 15, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Finland.
The Finnish economy is recovering from the 2023 recession, supported by easing inflation and real wage growth. However, the rebound is hindered by stagnant construction investment and weak external demand. Employment remains robust, driven by lower real wages, increased immigration, higher public employment, and increased participation rates. Inflation has temporarily fallen below
2 percent, reflecting declining energy prices and subdued domestic demand.
The economy is projected to have contracted by 0.3 percent in 2024 before rebounding to around 1½ percent in 2025, as private investment and consumption recover alongside easing interest rates and stabilizing house prices. External demand will pick up somewhat but will be offset by stronger imports. Risks remain tilted to the downside, with intensification of regional conflicts and geopolitical fragmentation. Structural challenges, such as adverse demographics and low productivity growth, weigh on the medium-term outlook. Supported by the recent VAT hike and recovering domestic demand, inflation is expected to stabilize around 2 percent in 2025.
Executive Board Assessment[2]
Directors welcomed Finland’s strengthening growth momentum following the 2023 recession and the decline in inflation. However, the outlook is clouded by longstanding structural challenges, including from low productivity growth and aging population, and risks are tilted to the downside, particularly on the external front. To strengthen the economy’s resilience, Directors highlighted the need to ensure fiscal sustainability and financial stability, while implementing structural reforms focused on boosting potential growth.
Directors commended the authorities’ ongoing fiscal efforts, while emphasizing the need for additional consolidation to reverse public debt dynamics amid pressures from defense and aging‑related spending. They concurred that the adjustment should involve both spending and revenue measures, while protecting productivity‑enhancing spending, including public investments, education, and R&D.
Directors were encouraged by the resilience of the banking system but noted remaining pockets of vulnerability, including from high reliance on wholesale funding, household indebtedness, and cross‑border risks. They welcomed the reinstatement of the systemic risk buffer and recommended further strengthening of the macroprudential toolkit. Directors commended Finland’s initiative in conducting joint Nordic and Baltic‑wide banking sector stress tests, and urged continued monitoring of financial stability risks related to non‑bank financial institutions. They also encouraged further strengthening the AML/CFT framework.
Directors agreed that structural reforms are essential for enhancing Finland’s potential growth. They welcomed the recent labor market reforms, and encouraged further efforts to increase labor force participation rates, reduce skill mismatches, and address the steep decline in average hours worked since the pandemic. Exploring further measures to improve productivity, including by easing access to risk capital, reviewing barriers to entry into the services sector, and promoting the deepening of the European Single Market, will also be key. Directors considered that strengthening the role of carbon sinks through additional policy measures, including taxes, will be important to help meet Finland’s ambitious national climate mitigation targets.
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Finland: Selected Economic Indicators, 2021–30 |
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2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
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Proj. |
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Output and Demand (Volumes) |
(Percentage change, unless otherwise indicated) |
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|
GDP |
2.7 |
1.5 |
-1.2 |
-0.3 |
1.5 |
1.5 |
1.4 |
1.3 |
1.2 |
1.2 |
|
Domestic demand |
3.0 |
3.0 |
-4.2 |
-0.8 |
1.9 |
1.8 |
1.6 |
1.4 |
1.2 |
1.2 |
|
Private consumption |
3.2 |
1.3 |
0.3 |
-0.4 |
1.0 |
1.1 |
1.1 |
1.1 |
1.1 |
1.1 |
|
Public consumption |
3.9 |
-1.0 |
3.4 |
1.0 |
0.5 |
0.6 |
0.9 |
0.9 |
0.9 |
0.9 |
|
Gross fixed capital formation |
1.7 |
2.6 |
-9.0 |
-6.6 |
4.2 |
3.8 |
3.5 |
2.7 |
1.8 |
1.8 |
|
Net exports (contribution to growth in percent of GDP) |
-0.1 |
-1.7 |
3.1 |
1.2 |
-0.4 |
-0.2 |
-0.2 |
-0.1 |
0.0 |
0.0 |
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Prices, Costs, and Income |
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Consumer price inflation (harmonized, average) |
2.1 |
7.2 |
4.3 |
1.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
|
Consumer price inflation (harmonized, end-year) |
3.2 |
8.8 |
1.3 |
1.9 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
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Labor Market |
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|
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|
|
|
|
|
|
|
Participation Rate (15-74 years) |
67.0 |
68.0 |
68.6 |
68.9 |
69.3 |
69.6 |
70.1 |
70.5 |
70.9 |
71.4 |
|
Employment |
2.4 |
2.6 |
0.3 |
-1.1 |
0.5 |
0.4 |
0.5 |
0.6 |
0.6 |
0.6 |
|
Unemployment rate (in percent) |
7.6 |
6.8 |
7.2 |
8.3 |
8.1 |
7.9 |
7.8 |
7.6 |
7.4 |
7.3 |
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Potential Output |
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Output gap (in percent of potential output)1 |
0.6 |
1.1 |
-0.9 |
-2.2 |
-1.5 |
-0.8 |
-0.5 |
-0.3 |
-0.2 |
0.0 |
|
Growth in potential output |
0.9 |
0.9 |
0.9 |
0.9 |
0.8 |
0.8 |
1.0 |
1.1 |
1.1 |
1.0 |
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General Government Finances2 |
(Percent of GDP) |
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Overall balance |
-2.8 |
-0.4 |
-3.0 |
-3.7 |
-3.2 |
-2.6 |
-2.3 |
-2.1 |
-2.1 |
-2.1 |
|
Primary balance3 |
-2.9 |
-0.4 |
-3.0 |
-3.9 |
-2.8 |
-2.0 |
-1.4 |
-1.0 |
-1.0 |
-1.0 |
|
Structural balance (in percent of potential GDP)4 |
-3.2 |
-1.5 |
-2.4 |
-2.2 |
-2.30 |
-2.1 |
-2.4 |
-2.5 |
-2.5 |
-2.5 |
|
Structural primary balance (in percent of potential GDP)5 |
-3.3 |
-1.5 |
-2.5 |
-2.3 |
-2.0 |
-1.5 |
-1.5 |
-1.4 |
-1.4 |
-1.4 |
|
Gross debt |
73.1 |
73.9 |
77.0 |
81.6 |
84.2 |
85.3 |
85.9 |
86.6 |
87.4 |
88.2 |
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Money and interest rates |
|
|
|
|
|
|
|
|
|
|
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Domestic nonfinancial private sector credit growth (e.o.p.) |
5.3 |
6.1 |
3.9 |
... |
... |
... |
... |
... |
... |
... |
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National saving and investment |
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Gross national saving |
25.1 |
25.3 |
22.4 |
21.3 |
21.9 |
22.5 |
22.9 |
23.3 |
23.5 |
23.7 |
|
Gross domestic investment |
24.8 |
27.5 |
22.8 |
21.5 |
22.3 |
22.9 |
23.3 |
23.6 |
23.8 |
23.9 |
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Balance of Payments |
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Current account balance |
0.3 |
-2.2 |
-0.4 |
-0.3 |
-0.4 |
-0.4 |
-0.4 |
-0.3 |
-0.2 |
-0.1 |
|
Goods and services balance |
0.1 |
-1.9 |
0.3 |
0.8 |
0.5 |
0.4 |
0.3 |
0.2 |
0.3 |
0.3 |
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Net international investment position |
2.3 |
0.2 |
12.6 |
12.0 |
11.2 |
10.4 |
9.5 |
8.8 |
8.3 |
7.8 |
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Gross external debt |
209.6 |
215.7 |
215.3 |
214.8 |
211.7 |
209.2 |
206.6 |
204.5 |
202.4 |
200.3 |
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Sources: Bank of Finland; BIS; International Financial Statistics; IMF Institute; Ministry of Finance; Statistics Finland; and IMF staff calculations. 1 A negative value indicates a level of actual GDP that is below potential output. 2 Fiscal projections include measures as specified in the General Government Fiscal Plan. 3 Adjusted for interest expenditures and receipts. 4 Not adjusted for COVID-related one-off measures. 5 Adjusted for interest expenditures and receipts. Not adjusted for COVID-related one-off measures. |
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1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
