{
  "title": "IMF Executive Board Concludes 2022 Article IV Consultation with Finland",
  "publication": "IMF News, January 23, 2023",
  "sourceUrl": "https://www.imf.org/en/news/articles/2023/01/20/pr2309-imf-executive-board-concludes-2022-article-iv-consultation-with-finland",
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  "summary": "IMF Executive Board Concludes 2022 Article IV Consultation with Finland",
  "publishDate": "2023-01-23",
  "sections": [
    {
      "heading": "Economic outlook and inflation",
      "content": "- Strong post-Covid recovery is faltering due to spillovers from Russia’s invasion of Ukraine.\n- Growth developments:\n  - Government policies helped bring output back to the pre-pandemic trend and employment to a record-high level.\n  - Growth turned negative in the third quarter of 2022, reflecting reduced trade with Russia, higher energy prices, and higher interest rates weighing on private consumption and investment.\n  - Economic activity is expected to stall in 2023.\n  - Growth is projected to start recovering in 2024 and return to a subdued trend rate of around 1¼.\n  - Risks are skewed to the downside given uncertainties related to the war.\n- Inflation:\n  - Energy prices are passing through to core prices, sustaining inflation.\n  - Headline inflation is expected to remain at about 4½ percent in 2023, and to return to the 2 percent target in the medium term.\n- Labor market:\n  - Wage growth has remained moderate, but recent agreements in the public sector point to pressures."
    },
    {
      "heading": "Fiscal stance and public debt",
      "content": "- Fiscal developments:\n  - The fiscal deficit is expected to widen, providing a mild stimulus in 2023 and putting public debt on a riskier path.\n  - Deficits are projected to be higher than the pre-war path by about 1 percentage point.\n  - The widening of the 2023 deficit reflects measures to compensate for higher energy prices and higher security-related spending; the latter persists into the medium term.\n  - Under unchanged policies, the debt ratio would increase from around 72 percent of GDP in 2022 to close to 80 percent by 2028.\n- Executive Directors’ views on fiscal policy:\n  - Fiscal policy in the near term should be supportive of monetary policy.\n  - A slightly tighter fiscal stance relative to 2022 would be desirable in 2023; security spending and support to the vulnerable should be prioritized.\n  - Directors encouraged better targeting of support measures in response to elevated energy prices.\n  - Noting widening fiscal deficits over the medium term, Directors agreed a gradual but sustained fiscal consolidation is needed to put the public debt ratio on a declining path and create room for aging-related spending.\n  - Authorities’ plan to strengthen the fiscal framework and carry out comprehensive spending and tax revenue reviews to identify possible consolidation measures is welcome."
    },
    {
      "heading": "Structural reforms and labor market policies",
      "content": "- Directors emphasized boosting employment and productivity as key for growth and sustainability.\n- Policy recommendations:\n  - Further measures to reduce work disincentives.\n  - Improve access to tertiary education and attract foreign labor.\n  - More flexibility within the coordinated wage bargaining framework to support employment.\n  - Government proposal to increase R&D spending to 4 percent of GDP in the medium term was welcomed; Directors called for the spending to be targeted."
    },
    {
      "heading": "Financial sector stability and macroprudential policy",
      "content": "- Banking sector:\n  - The banking sector is well-capitalized and profitable, and in terms of solvency, resilient to adverse macroeconomic shocks.\n  - The banking sector is large, concentrated, highly connected with other financial systems in the Nordic region, and heavily reliant on wholesale funding, exposing it to liquidity shocks.\n  - Household debt remains elevated and corporate debt has risen.\n- Directors’ recommendations:\n  - Strengthen operational independence of the financial supervisory authority (FIN-FSA).\n  - Reinstate systemic risk buffers.\n  - Enhance the banking sector’s resilience to liquidity shocks and cross-border exposures in the Nordic region.\n  - Improve the macroprudential toolkit to address vulnerabilities from high household indebtedness.\n  - Encourage legislating a positive neutral rate for the countercyclical capital buffer to help build macroprudential policy space in the medium term.\n  - Further strengthening of AML/CFT supervision remains important.\n- Directors welcomed progress in strengthening oversight and broadly supported key policy recommendations of the 2022 Financial Sector Assessment Program (FSAP)."
    },
    {
      "heading": "Climate policy",
      "content": "- Directors commended Finland’s ambitious climate goals but emphasized that further measures, including reforms to carbon pricing, would be needed to achieve the 2035 carbon neutrality target."
    },
    {
      "heading": "Executive Board assessment highlights",
      "content": "- Directors commended authorities’ decisive response to the spillovers from Russia’s war against Ukraine, including finding alternative energy sources.\n- They welcomed adoption of structural reforms to boost employment and productivity.\n- Noted deterioration of the economic outlook and elevated inflation.\n- Urged focus on enhancing fiscal sustainability while continuing reforms to address structural impediments, reinforce financial system resiliency, and advance the green agenda.\n- It is expected that the next Article IV consultation with Finland will be held on the standard 12-month cycle."
    },
    {
      "heading": "Finland: Selected Economic and Social Indicators, 2020–28 (selected rows and projections)",
      "content": "- Output and demand (Percentage change, unless otherwise indicated)\n  - GDP: 2020: -2.2; 2021: 3.0; 2022: 2.0; 2023: 0.0; 2024: 1.3; 2025: 1.2\n  - Domestic demand: 2020: -2.0; 2021: 2.8; 2022: 3.5; 2023: 0.1; 2024: 0.8; 2025: 1.6\n  - Private consumption: 2020: -4.0; 2021: 3.7; 2022: 2.5; 2023: -0.1; 2024: 0.6; 2025: 0.7; 2026: 0.9\n  - Public consumption: 2020: 0.3; 2021: 2.9; 2022: 1.9; 2023: 1.0\n  - Gross fixed capital formation: 2020: -0.9; 2021: 1.5; 2022: 4.3; 2023: -0.3; 2024: 2.1\n  - Net exports (contribution to growth in percent of GDP): 2020: -0.7; 2021: -0.2; 2022: -1.5; 2023: 0.5\n- Prices, costs, and income\n  - Consumer price inflation (harmonized, average): 2020: 0.4; 2021: 7.2; 2022: 4.4; 2023: 2.2; 2024: 1.8\n- Labor market\n  - Labor force: 2020: -0.4; 2021: 0.2\n  - Employment: 2021: 2.4\n  - Unemployment rate (in percent): 2020: 7.8; 2021: 7.6; 2022: 6.8; 2023: 7.3; 2024: 7.0; 2025: 6.9\n- Potential output and gap\n  - Output gap (in percent of potential output)1: 2020: -2.7; 2021: -0.8; 2022: -0.5\n  - Growth in potential output: 2021: 1.1\n- General government finances (Percent of GDP)\n  - Overall balance: 2020: -5.5; 2021: -2.6; 2022: -2.5; 2023: -2.8\n  - Primary balance3: 2020: -5.4; 2021: -1.6; 2022: -2.4\n  - Structural balance (in percent of potential GDP)4: 2020: -3.4; 2021: -1.8; 2022: -1.9; 2023: -2.3\n  - Structural primary balance (in percent of potential GDP)5: 2020: -3.3\n  - Gross debt: 2020: 74.8; 2021: 72.3; 2022: 72.1; 2023: 73.6; 2024: 74.7; 2025: 75.9; 2026: 77.1; 2027: 78.7; 2028: 80.3\n  - Net debt6: 2020: -64.1; 2021: -72.1; 2022: -66.5; 2023: -61.3; 2024: -56.8; 2025: -52.3; 2026: -48.2; 2027: -44.1; 2028: -40.0\n- Balance of payments\n  - Current account balance: 2020: -2.9; 2021: -1.7; 2022: -0.6\n  - Goods and services balance: 2020: -3.0; 2021: -3.1; 2022: -2.1; 2023: -1.3; 2024: -1.2; 2025: -1.1\n  - Net international investment position: 2020: -4.5; 2021: -1.4; 2022: -4.1; 2023: -6.8; 2024: -8.2; 2025: -8.7; 2026: -8.9; 2027: -9.1; 2028: -9.0\n  - Gross external debt: 2020: 222.7; 2021: 208.1; 2022: 211.9; 2023: 215.1; 2024: 216.3; 2025: 216.1; 2026: 216.5; 2027: 217.4\n\nIMF Communications Department, Press Release No. 23/09 (January 23, 2023).\n\n---\n\n\n References\n\n- Finland and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/01/20/pr2309-imf-executive-board-concludes-2022-article-iv-consultation-with-finland"
    }
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    "Published: January 23, 2023",
    "Strong post-Covid recovery is faltering due to spillovers from Russia’s invasion of Ukraine.",
    "Growth developments:",
    "Inflation:",
    "Labor market:",
    "Fiscal developments:",
    "Executive Directors’ views on fiscal policy:",
    "Directors emphasized boosting employment and productivity as key for growth and sustainability.",
    "Policy recommendations:",
    "Banking sector:",
    "Directors’ recommendations:",
    "Directors welcomed progress in strengthening oversight and broadly supported key policy recommendations of the 2022 Financial Sector Assessment Program (FSAP).",
    "Directors commended Finland’s ambitious climate goals but emphasized that further measures, including reforms to carbon pricing, would be needed to achieve the 2035 carbon neutrality target.",
    "Directors commended authorities’ decisive response to the spillovers from Russia’s war against Ukraine, including finding alternative energy sources.",
    "They welcomed adoption of structural reforms to boost employment and productivity.",
    "Noted deterioration of the economic outlook and elevated inflation.",
    "Urged focus on enhancing fiscal sustainability while continuing reforms to address structural impediments, reinforce financial system resiliency, and advance the green agenda.",
    "It is expected that the next Article IV consultation with Finland will be held on the standard 12-month cycle.",
    "Output and demand (Percentage change, unless otherwise indicated)",
    "Prices, costs, and income",
    "Labor market",
    "Potential output and gap",
    "General government finances (Percent of GDP)",
    "Balance of payments",
    "[Finland and the IMF](http://www.imf.org/external/country/FIN/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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