## Finland: Staff Concluding Statement of the 2025 Article IV Mission _IMF News, November 8, 2024_ ## Source details **Canonical URL:** [Finland: Staff Concluding Statement of the 2025 Article IV Mission](https://www.imf.org/en/news/articles/2024/11/07/mcs-finland-staff-concluding-statement-of-the-2025-article-iv-mission) ## Other formats - [Markdown version](/en/news/articles/2024/11/07/mcs-finland-staff-concluding-statement-of-the-2025-article-iv-mission/index.md) - [Structured JSON version](/en/news/articles/2024/11/07/mcs-finland-staff-concluding-statement-of-the-2025-article-iv-mission/index.json) - [Bundle manifest](/en/news/articles/2024/11/07/mcs-finland-staff-concluding-statement-of-the-2025-article-iv-mission/bundle-manifest.json) ## Bibliographic details - Published: November 8, 2024 --- ### Mission and context - A team from the International Monetary Fund (IMF), led by Mr. Alex Pienkowski, held discussions during October 29-November 8 for the 2025 Article IV Consultation. - The team met with Governor Olli Rehn, Permanent Secretary Juha Majanen, other senior officials, and representatives from the private sector, banks, labor unions, and other stakeholders. - Helsinki, Finland: Following a hard landing in 2023, the Finnish economy has started to recover. Modest growth is projected in 2025 and in the medium term, but risks are tilted to the downside. ### Economic performance and outlook - GDP fell by 1.2 percent in 2023. - Quarterly growth turned slightly positive in the first half of 2024. - Annual growth is projected at -0.3 percent in 2024, as private investment continues to contract. - Output is projected to grow by 1.6 percent in 2025 as private investment spending partially recovers and private consumption increases further. - Medium-term growth is projected to be slightly below 1½ percent. - Employment since the pandemic has been robust, supported by weak real wages, higher immigration, greater public employment, and increased participation rates. - Recent steeper-than-trend fall in average hours worked noted; part cyclical or preference-driven, but may reflect market and policy failures requiring attention. ### Inflation and wages - Based on preliminary data, 12-month headline inflation reached 1.5 percent in October, driven by falling energy prices and moderating core inflation. - Core inflation: 2.3 percent. - Headline inflation is expected to stabilize around 2 percent by the end of 2025. - Real wages are growing modestly; moderating corporate profits prevented further inflationary pressure. ### Fiscal developments and recommendations - Fiscal deficit increased to 3.0 percent of GDP in 2023. - Public debt increased to 77 percent of GDP in 2023. - The deficit is set to continue to increase in 2024 despite new fiscal consolidation measures announced in April 2024. - New fiscal consolidation measures announced in April 2024 amount to €3 billion (1 percent of GDP), including: - An increase in VAT rates from 24 to 25.5 percent in September. - Cost savings in central government operations. - Scaling back obligations in health and social care. - The bulk of these measures will be realized in 2025. - Policy recommendation: Additional fiscal consolidation is needed to reverse the debt trajectory and credibly start reducing the fiscal deficit. - Quantified fiscal target: The authorities should aim to balance the fiscal budget by 2029. - Guidance on composition of adjustment: - Protect productivity-enhancing spending such as public investment, R&D support, and education. - Complement fiscal consolidation with structural reforms to accelerate the pace of the recovery. ### Labor, education, and productivity policies - Recent reforms: changes to unemployment benefits, social security and tax adjustments, and enhancements to employment services. - Policy focus: - Increase labor force participation rates toward Nordic peers. - 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 is welcome. - Address barriers to higher-intensity work given the fall in average hours worked. - Innovation and firm dynamics: - R&D expenditure relative to GDP remains high by EU standards despite a multi-year decline; authorities plan to support and raise it further. - Finland has a notable venture capital sector supported by public-sector investment funds and a large domestic pension industry. - Weak productivity growth and slow formation of high-growth young firms (“Gazelles”) relative to EU and Nordic peers. - Policy recommendations to support business dynamism: - Review tax treatment of venture capital funding and rebates associated with investment spending by firms. - Address potential barriers to entry and excessive regulation in the service sector. ### Financial sector resilience and recommendations - Current strengths: - Banks’ capital and liquidity buffers remain well above regulatory requirements. - Stress tests indicate banks can withstand a deep recession scenario. - Strong preparation and active counter-measures have contained impacts from a steep increase in cyber-attacks targeted at financial institutions. - Remaining vulnerabilities: - Large and highly interconnected banks with significant direct lending, in particular to the real estate sector in other Nordic countries. - Liquidity risks due to a high reliance on short-term wholesale funding. - High household indebtedness and elevated debt service burdens. - Policy actions and recommendations: - Staff welcome Finland’s initiative to lead discussions with neighbors to undertake a joint Nordic-Baltic banking sector stress test. - Reinstatement of the systemic risk buffer (SyRB) on credit institutions at 1 percent in 2024 has enhanced resilience. - Introduce a positive neutral rate for the Counter-Cyclical Capital Buffer and a full set of borrower-based measures to allow release of capital in periods of extreme stress. - Enhance bank liquidity buffers to cover a predetermined threshold of wholesale funding outflows over a five-day horizon and hold a higher stock of high-quality liquid assets. - Continue progress in implementing the 2022 Financial Sector Assessment Program recommendations, including in crisis management and non-bank financial institutions. ### Risks to the outlook - Downside risks (mostly external): - An escalation of Russia’s war in Ukraine. - Adverse shocks in other Nordic countries, including in the commercial real estate markets. - Deepening geoeconomic fragmentation. - Further tightening of global financial conditions. - Upside domestic risks: - Higher investment and innovation from the green transition. - Further expansion of the ICT sector. - Stronger employment growth associated with the government’s recent reforms. *Source: Staff Concluding Statement of the 2025 Article IV Mission, November 8, 2024.* --- ## References - [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) - [Mission Concluding Statements](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2024/11/07/mcs-finland-staff-concluding-statement-of-the-2025-article-iv-mission_