Finland: 2019 Article IV Consultation-Press Release; and Staff Report

IMF Staff Country Reports, January 16, 2020

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Finland: 2019 Article IV Consultation-Press Release; and Staff Report

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Bibliographic details

• Published: January 16, 2020
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781513526195.002

Economic performance and near-term outlook

• Finland’s economy "has performed well over the past three years, however, has slowed in 2019."
• The fiscal expansion announced by the new government "is expected to provide useful cyclical support in the short run."
• The fiscal expansion will require "offsetting measures" to ensure "the structural balance reaches the government’s medium-term target."

Structural constraints and productivity

• "Productivity growth remains weak."
• "Trend growth [is] also constrained by adverse demographics."

Household finances and financial-sector vulnerabilities

• "There are some vulnerabilities in household finances."
• "Risks in the banking system remain low overall, but some types of lending are increasing household vulnerabilities."
• The report notes that "the recent recommendation to limit the ratio of household debt to income is both sensible and in line with steps taken in many other countries."

Government policy priorities and fiscal challenge

• The new coalition government targets:
  • "greater social support and inclusion,"
  • "higher employment,"
  • "carbon neutrality by 2035,"
  • "a balanced budget by 2023."
• Key challenge: "to balance plans to increase spending with the need to maintain fiscal buffers."

Employment strategy and policy assessment

• "The government aims for a substantial increase in employment, but the effectiveness of the proposed wage subsidies is unclear."
• Suggested alternative or complementary measures: "incentives from tax and benefit schedules could be improved, especially for younger women, older workers, and those out of the workforce."

Key messages for policy makers

• Short-run fiscal expansion can support the cycle but must be offset to meet medium-term structural balance objectives.
• Prioritize reforms to raise productivity and mitigate demographic headwinds.
• Address household vulnerabilities by monitoring lending patterns and considering limits on household-debt-to-income ratios.
• Improve activation and incentive structures in taxes and benefits, targeting younger women, older workers, and those outside the workforce; re-evaluate the expected impact of wage subsidies.

Finland: 2019 Article IV Consultation-Press Release; and Staff Report (January 16, 2020).

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