Press Release No. 26/007

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Finland[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]

Since the 2023 downturn, the economic recovery has been slow as consumption has remained weak and construction investment fell. Unemployment continued to increase, largely driven by expanding labor supply, while inflation remained contained at around 2 percent. The banking sector remains sound, but bank credit is subdued despite easing financial conditions. The fiscal position deteriorated significantly due to weak growth and expenditure increases.

The economy is set to regain momentum in 2026, supported by private demand. Real disposable income is projected to strengthen further and underpin a gradual rebound in private consumption, supported by large household saving buffers. Private investment will strengthen as the construction sector slowly recovers and a pipeline of large-scale projects move forward. As a result, real GDP is projected to grow by 1.5 percent in 2026 and 2027. But risks are tilted to the downside, primarily from trade tensions and geoeconomic uncertainty. Inflation is expected to remain close to 2 percent.

Executive Board Assessment[3]

Growth has struggled to rebound since the downturn in 2023. Private consumption was unusually weak, as heightened uncertainty, falling house prices, and still-high interest rates more than offset a modest recovery in real wages. Private investment has also been weak, although recently showed tentative signs of improvement. But growth is expected to strengthen from 2026, as higher real disposable income underpins private consumption growth, private investment gains momentum, and construction sector slowly recovers. Finland’s external position is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.

The overall fiscal deficit increased to 4½ percent in 2024 and remained at a comparable level in 2025. While the consolidation efforts since 2024 are projected to improve the structural primary balance somewhat in 2026, the overall deficit is expected to remain above 3 percent, and the debt-to-GDP ratio will reach 95 percent by the end of the decade.

Further consolidation is needed to put debt on a downward trajectory, anchored by the new fiscal framework. Consistent with past advice, the staff recommends consolidation by
½ percent of GDP per year, until the fiscal balance is closed and debt is on a declining path. The new fiscal framework, designed to secure political commitment to multi-year fiscal planning, is expected to anchor this consolidation effort. The size of the fiscal challenge suggests both revenue and expenditure measures should be explored, with a higher share from the latter. Public spending priorities should be revisited, especially for social protection, education, and health spending, and potentially the pension system, supported by regular expenditure reviews. Revenue mobilization should focus on indirect taxes.

Banks’ capital and profitability positions remain strong. Stress tests conclude that systemic risks are contained, and Finnish banks could withstand a severe economic slowdown amid elevated uncertainty and heightened geopolitical tensions. However, banks’ heavy reliance on short-term wholesale funding continue to pose financial stability risks. Sectoral risks remain, as banks continue to have large real estate exposures, housing activity remains weak and the commercial real estate sector continues to face elevated risks. Staff supports the ongoing preparatory work to perform a joint Nordic-Baltic banking sector stress test in 2026, given the high cross-border interconnectedness of the Finnish financial sector.

Macroprudential buffers should be enhanced and borrower-based measures should not be relaxed. The authorities should consider gradually phasing in a positive neutral counter-cyclical capital buffer to further strengthen resilience during periods of significant stress.  Given the banking sector’s heavy reliance on wholesale funding, bank liquidity buffers should be enhanced to cover wholesale funding outflows over a five-day horizon, and banks should hold a higher stock of high-quality liquid assets. Existing borrower-based measures should not be relaxed given the elevated household debt while additional measures should be added to the toolkit. The authorities should maintain a clear macroprudential mandate for the FIN-FSA with a well-defined financial stability objective.

Labor market reforms should be complemented by efforts to integrate foreign labor and strengthen tertiary education. The rationalization of unemployment benefits, curtailed access to early retirement, and streamlined work-based immigration procedures have contributed to the increase in labor supply. These initiatives should be complemented by measures to promote the integration of immigrants and facilitate their employment. Weaker tertiary education attainment highlights the need for targeted reforms. Limiting the scope for students to pursue more than one degree at the same level—except in fields with clear labor market needs—would free up capacity for first-time entrants.

Indicators on innovation, digitalization and AI preparedness suggest that Finland has a strong basis to create innovative startup firms and is well-prepared to reap the benefits of AI. However, Finnish firms face challenges in scaling up to compete internationally. Finland should review domestic regulations and continue to advocate for further European integration, as reducing internal barriers at the EU-level will be beneficial for the Finnish companies to access larger markets. AI has the potential to significantly enhance productivity across several sectors and occupations, but its rapid adoption might reshape the job landscape and lead to faster- and larger-than-expected job displacement. Therefore, upskilling and reskilling the labor force and adapting active policies to facilitate labor reallocation will be crucial.

 

 

Table 1. Finland: Selected Economic Indicators, 2023–31
	2023	2024	2025 1	2026	2027	2028	2029	2030	2031
				Proj.
	(Percentage change, unless otherwise indicated)
Output and Demand (Volumes)
GDP	-0.9	0.4	0.2	1.5	1.5	1.3	1.2	1.2	1.2
Domestic demand	-4.2	-0.3	-0.3	1.5	1.7	1.6	1.4	1.4	1.4
Private consumption	0.0	-0.4	-0.4	1.5	1.3	1.2	1.2	1.2	1.2
Public consumption	2.6	1.7	-2.5	-0.8	0.9	0.9	1.0	1.0	1.0
Gross fixed capital formation	-7.4	-5.0	-0.3	4.4	4.1	2.8	2.6	2.6	2.6
Net exports (contribution to growth in percent of GDP)	2.9	1.1	1.2	-0.1	-0.2	-0.3	-0.2	-0.2	-0.2
Prices, Costs, and Income
Consumer price inflation (harmonized, average)	4.3	1.0	1.8	1.7	2.0	2.0	2.0	2.0	2.0
Consumer price inflation (harmonized, end-year)	1.3	1.6	1.7	2.0	2.0	2.0	2.0	2.0	2.0
GDP deflator	3.5	0.7	1.4	1.9	2.2	1.9	2.1	2.4	2.3
Unit labor cost, manufacturing	6.7	-2.7	0.0	1.9	2.3	1.8	2.0	2.1	2.1
Labor Market
Participation Rate (15-74 years)	68.6	69.0	69.4	69.7	70.2	70.8	71.2	71.7	72.2
Employment	0.3	-0.9	-0.4	0.4	0.5	0.6	0.6	0.6	0.6
Unemployment rate (in percent)	7.2	8.4	9.0	8.7	8.6	8.6	8.4	8.3	8.2
Potential Output
Output gap (in percent of potential output)2	-0.9	-1.4	-1.7	-1.0	-0.7	-0.5	-0.3	-0.1	0.0
Growth in potential output	0.8	0.9	0.5	0.8	1.2	1.1	1.0	1.0	1.1
	(Percent of GDP)
General Government Finances3
Overall balance	-2.9	-4.5	-4.5	-3.6	-3.5	-3.2	-3.3	-3.2	-3.1
Primary balance4	-3.0	-4.4	-4.1	-2.8	-2.4	-1.9	-1.9	-1.8	-1.7
Structural balance (in percent of potential GDP)5	-2.4	-3.5	-3.4	-3.2	-3.5	-3.5	-3.6	-3.7	-3.7
Structural primary balance (in percent of potential GDP)6	-2.6	-3.4	-3.0	-2.4	-2.5	-2.3	-2.3	-2.3	-1.2
Gross debt	77.1	82.1	88.3	90.2	90.7	92.4	94.0	95.1	96.2
Balance of Payments
Current account balance	-0.9	-0.7	0.4	0.3	0.1	0.0	-0.1	0.0	0.0
Goods and services balance	0.0	0.4	1.6	1.4	1.1	0.9	0.7	0.8	0.8
Net international investment position	12.9	24.7	24.8	24.3	23.6	22.9	22.1	21.3	20.7
Gross external debt	216.9	203.5	211.2	215.6	218.5	223.0	226.5	229.3	231.4
Sources: Bank of Finland; BIS; International Financial Statistics; IMF Institute; Ministry of Finance; Statistics Finland; and IMF staff calculations. 1 Values for 2025 are estimates. 2 A negative value indicates a level of actual GDP that is below potential output. 3 Fiscal projections include measures as specified in the General Government Fiscal Plan. 4 Adjusted for interest expenditures and receipts. 5 Not adjusted for COVID-related one-off measures. 6 Adjusted for interest expenditures and receipts. Not adjusted for COVID-related one-off measures.

 

[1] Under 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] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/finland page.  

[3] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.