{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Finland",
  "publication": "IMF News, March 11, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/03/07/pr-2475-finland-imf-executive-board-concludes-2024-article-iv-consultation",
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  "summary": "On March 7, 2024 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Finland and endorsed the staff appraisal without a meeting.",
  "publishDate": "2024-03-11",
  "sections": [
    {
      "heading": "Overview",
      "content": "- On March 7, 2024 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Finland and endorsed the staff appraisal without a meeting.\n- Finland’s economy recovered swiftly from the pandemic, but growth slowed after Russia’s war in Ukraine.\n- Activity is estimated to have contracted by 0.5 percent in 2023.\n- Inflation has fallen to more normal levels and financial conditions appear to be easing.\n- Structural challenges: adverse demographics and weak productivity have resulted in low trend growth, weighing on public finances.\n- Key downside risks: a resurgence of the energy crisis; an escalation of the war in Ukraine; further tightening of global financial conditions; possibility of a deeper “balance sheet recession.”"
    },
    {
      "heading": "Economic Outlook and Projections",
      "content": "- A shallow recovery is expected in 2024 as inflation pressure continues to ease and a modest recovery in real earnings supports consumption.\n- Growth projections:\n  - GDP contraction of 0.5 percent in 2023 (estimated).\n  - Economic growth expected to be around ½ percent in 2024.\n  - Growth projected to rebound to around 1½ percent in the medium term.\n- Inflation:\n  - Average inflation expected to remain below 2 percent in 2024 due to negative base effects and a growing output gap.\n- External position:\n  - The external position in 2023 is assessed to be moderately weaker than implied by fundamentals and desirable policy settings."
    },
    {
      "heading": "Executive Board Assessment (summary)",
      "content": "- Finland’s growth has stalled; a modest recovery is expected this year.\n- Elevated interest rates, sluggish trading partner growth, and a declining housing market are weighing on activity.\n- Unemployment is expected to increase slightly, particularly as the construction industry cuts back on employment.\n- Improvement in household purchasing power and loosening financial conditions will contribute to a modest recovery in the second half of the year.\n- Medium-term growth is expected to be driven by increases in investment and employment resulting from labor market reforms."
    },
    {
      "heading": "Fiscal Assessment and Policy Recommendations",
      "content": "- Fiscal outcomes and risks:\n  - Increased expenditure in energy-related compensation, defense, high index-linked increases in social benefits, and support for Wellbeing Service Counties is expected to have increased the deficit to 2.5 percent of GDP in 2023.\n  - Debt ratio has climbed to 76 percent, surpassing those of other Nordic countries.\n  - The worsened fiscal outlook is expected to persist, putting public debt on a risky path over the medium term.\n- Government plans and assessment:\n  - The new government plans to adjust medium-term fiscal deficit by 2 percent of GDP through spending cuts and employment-driven fiscal gains, targeting overall fiscal deficit of 1 percent of GDP by 2027.\n  - Staff assessment: existing measures fall short; consolidation will likely be diluted by new spending pressures and expected revenue shortfalls.\n- Recommended fiscal strategy:\n  - Begin a structural adjustment of around ¼ percent of GDP in 2024, growing to ½ percent per year over the medium term.\n  - Aim to balance the budget by 2028.\n  - Further spending cuts required, including efficiency gains from the Wellbeing Service Counties.\n  - Supplement spending restraint with revenue measures such as excise tax indexation, expansion of carbon taxation, VAT rate standardization, and revising dividend taxation for non-listed companies."
    },
    {
      "heading": "Employment, Productivity, and Structural Reforms",
      "content": "- Enhancing employment and productivity is essential for economic growth.\n- Support for government measures:\n  - Boost employment through social benefit reforms, greater labor market flexibility, and lowering the labor tax wedge.\n  - Establish robust systems to closely monitor the impact of these reforms on employment.\n  - Improve higher education, lower skill mismatches, and more effectively attract and integrate international talent.\n  - Focus research and development investment on catalyzing private sector funding."
    },
    {
      "heading": "Climate Goals",
      "content": "- Progress noted on expanding the production of low-emission energy, but further action is needed to achieve the 2035 carbon neutral target.\n- Policy suggestions:\n  - Consider strengthening carbon pricing.\n  - Increase the role of carbon-sinks in the land use sector."
    },
    {
      "heading": "Financial System Resilience and Macroprudential Policy",
      "content": "- Financial system status:\n  - Banks have sufficient capital to withstand adverse macroeconomic shocks, including geoeconomic fragmentation and weakening of profits and capital ratios.\n  - Banks’ high dependence on short-term wholesale funding makes them susceptible to liquidity shocks.\n  - Banks are exposed to systemic events in the Nordic region, CRE market volatility, falling house prices, and still high household indebtedness.\n- Recommendations:\n  - Tighten liquidity regulation.\n  - Continue continuous and close monitoring of systemic risks.\n  - Further tighten macroprudential policy to target pockets of vulnerability and increase financial system resilience.\n  - Legislate a positive neutral rate on the CCyB.\n  - Enhance the systemic risk monitoring framework.\n  - Add debt-to-income and debt-service-to-income limits to the macroprudential toolkit; these measures could be activated when concerns regarding adverse effects on demand and house prices subside.\n- Staff welcomed recent tightening including reinstatement of systemic risk buffer to the pre-pandemic level."
    },
    {
      "heading": "Key Statistics and Projections (2021–29)",
      "content": "- GDP growth (percentage change):\n  - 2021: 2.8\n  - 2022: 1.6\n  - 2023: -0.5\n  - 2024 (Proj.): 0.4\n  - 2025 (Proj.): 1.9\n  - 2026 (Proj.): 1.7\n  - 2027 (Proj.): 1.5\n- Domestic demand (percentage change):\n  - 2021: 3.0\n  - 2022: -3.0\n  - 2023: 1.1\n- Private consumption (percentage change):\n  - 2021: 3.2\n  - 2022: -0.8\n  - 2023: 0.5\n  - 2024 (Proj.): 1.3\n  - 2025 (Proj.): 1.2\n- Gross fixed capital formation:\n  - 2021: 1.0\n  - 2022: 3.1\n  - 2023: -5.7\n  - 2024 (Proj.): 2.0\n  - 2025 (Proj.): 4.4\n  - 2026 (Proj.): 3.4\n  - 2027 (Proj.): 2.4\n- Net exports (contribution to growth in percent of GDP):\n  - 2021: 0.0\n  - 2022: -2.0\n  - 2023: 2.6\n  - 2024 (Proj.): -0.7\n  - 2025 (Proj.): -0.1\n- Consumer price inflation (harmonized, average):\n  - 2021: 2.1\n  - 2022: 7.2\n  - 2023: 4.3\n- Consumer price inflation (harmonized, end-year):\n  - 2022: 8.8\n- Labor market:\n  - Participation Rate (15-74 years):\n    - 2021: 67.0\n    - 2022: 68.0\n    - 2023: 68.8\n    - 2024 (Proj.): 69.3\n    - 2025 (Proj.): 69.8\n    - 2026 (Proj.): 70.2\n    - 2027 (Proj.): 70.7\n    - 2028 (Proj.): 71.2\n    - 2029 (Proj.): 71.7\n  - Employment:\n    - 2021: 0.1\n    - 2022: 0.6\n  - Unemployment rate (in percent):\n    - 2021: 7.6\n    - 2022: 6.8\n    - 2023: 7.4\n    - 2024 (Proj.): 7.3\n    - 2025 (Proj.): 7.1\n- Potential output and output gap:\n  - Output gap (in percent of potential output)1:\n    - 2021: -1.0\n    - 2022: -0.4\n    - 2023: -1.9\n    - 2024 (Proj.): -2.4\n    - 2025 (Proj.): -1.7\n    - 2026 (Proj.): -0.9\n    - 2027 (Proj.): -0.2\n- General Government Finances (Percent of GDP)2:\n  - Overall balance:\n    - 2021: -2.8\n    - 2022: -2.5\n    - 2023: -3.5\n    - 2024 (Proj.): -3.4\n    - 2025 (Proj.): -2.7\n    - 2026 (Proj.): -2.2\n    - 2027 (Proj.): -2.3\n  - Primary balance3:\n    - 2021: -2.9\n    - 2022: -2.6\n    - 2023: -3.2\n    - 2024 (Proj.): -3.1\n  - Structural balance (in percent of potential GDP)4:\n    - 2021: -1.6\n    - 2022: -2.1\n  - Structural primary balance (in percent of potential GDP)5:\n    - 2021: -1.5\n    - 2022: -1.8\n  - Gross debt:\n    - 2021: 72.6\n    - 2022: 73.3\n    - 2023: 76.3\n    - 2024 (Proj.): 79.6\n    - 2025 (Proj.): 82.2\n    - 2026 (Proj.): 84.0\n    - 2027 (Proj.): 85.1\n    - 2028 (Proj.): 85.6\n    - 2029 (Proj.): 86.2\n  - Net debt6:\n    - 2021: -72.9\n    - 2022: -59.3\n    - 2023: -54.5\n    - 2024 (Proj.): -49.6\n    - 2025 (Proj.): -44.3\n    - 2026 (Proj.): -39.6\n    - 2027 (Proj.): -35.5\n    - 2028 (Proj.): -32.0\n    - 2029 (Proj.): -28.6\n- Balance of Payments:\n  - Gross external debt:\n    - 2021: 208.6\n    - 2022: 215.4\n    - 2023: 216.1\n    - 2024 (Proj.): 218.0\n    - 2025 (Proj.): 216.5\n    - 2026 (Proj.): 215.3\n    - 2027 (Proj.): 213.9\n    - 2028 (Proj.): 212.6\n    - 2029 (Proj.): 211.4\n\nIMF Communications Department, Press Release No. 24/75, March 11, 2024. Executive Board concluded Article IV consultation on March 7, 2024.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\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/2024/03/07/pr-2475-finland-imf-executive-board-concludes-2024-article-iv-consultation"
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    "Published: March 11, 2024",
    "On March 7, 2024 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Finland and endorsed the staff appraisal without a meeting.",
    "Finland’s economy recovered swiftly from the pandemic, but growth slowed after Russia’s war in Ukraine.",
    "Activity is estimated to have contracted by 0.5 percent in 2023.",
    "Inflation has fallen to more normal levels and financial conditions appear to be easing.",
    "Structural challenges: adverse demographics and weak productivity have resulted in low trend growth, weighing on public finances.",
    "Key downside risks: a resurgence of the energy crisis; an escalation of the war in Ukraine; further tightening of global financial conditions; possibility of a deeper “balance sheet recession.”",
    "A shallow recovery is expected in 2024 as inflation pressure continues to ease and a modest recovery in real earnings supports consumption.",
    "Growth projections:",
    "Inflation:",
    "External position:",
    "Finland’s growth has stalled; a modest recovery is expected this year.",
    "Elevated interest rates, sluggish trading partner growth, and a declining housing market are weighing on activity.",
    "Unemployment is expected to increase slightly, particularly as the construction industry cuts back on employment.",
    "Improvement in household purchasing power and loosening financial conditions will contribute to a modest recovery in the second half of the year.",
    "Medium-term growth is expected to be driven by increases in investment and employment resulting from labor market reforms.",
    "Fiscal outcomes and risks:",
    "Government plans and assessment:",
    "Recommended fiscal strategy:",
    "Enhancing employment and productivity is essential for economic growth.",
    "Support for government measures:",
    "Progress noted on expanding the production of low-emission energy, but further action is needed to achieve the 2035 carbon neutral target.",
    "Policy suggestions:",
    "Financial system status:",
    "Recommendations:",
    "Staff welcomed recent tightening including reinstatement of systemic risk buffer to the pre-pandemic level.",
    "GDP growth (percentage change):",
    "Domestic demand (percentage change):",
    "Private consumption (percentage change):",
    "Gross fixed capital formation:",
    "Net exports (contribution to growth in percent of GDP):",
    "Consumer price inflation (harmonized, average):",
    "Consumer price inflation (harmonized, end-year):",
    "Labor market:",
    "Potential output and output gap:",
    "General Government Finances (Percent of GDP)2:",
    "Balance of Payments:",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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/)",
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