Finland flag Finland: Economic outline

Economic Outline

Economic Indicators

Despite being vulnerable to the international conjuncture, Finland is often cited as a model example for its economic performance, competitiveness and innovative success. However, according to IMF estimates, GDP contracted by 0.1% in 2023 (from +1.6% one year earlier) due to weak private consumption and a decline in manufacturing and construction activity. The Finnish GDP is expected to experience an upturn in 2024, propelled by a gradual recovery in private consumption and investment, with a specific focus on advancing the green transition. Additionally, the construction sector is projected to recommence its growth in the latter part of 2024 and achieve full recovery by 2025, driven by increased private investment and a more favourable financial environment. The overall growth is forecast at 1% this year and 1.3% in 2025 (IMF – 0.8% and 1.5%, respectively, according to the EU Commission).

Despite the government's budget proposals featuring reductions in environmental and social expenditures, these measures were insufficient to counterbalance the planned escalation in security and defence spending (Finland joined Nato in March 2023), along with tax breaks. Hence, the general government budget was estimated at 1.7% of GDP last year, with a further expansion expected in 2024 (to 1.9% - IMF) due to a decline in revenue stemming from changes in social security contributions. Moreover, the deficit is forecasted to be influenced by increased defence expenditures, costs associated with research and development measures, and investment funding throughout the projected period. Additionally, higher interest costs and expenditure growth attributed to inflation are anticipated to contribute to the widening deficit. Meanwhile, the ongoing implementation of a more restrictive monetary policy by the European Central Bank is impacting the lending environment for both households and businesses in Finland. The general government debt-to-GDP ratio stood at 73.6% in 2023, with a small increase attributed to the primary deficit within central government finances, as well as deficits in local governments. The projection indicates a continued upward trend in the general government debt-to-GDP ratio, reaching 76.5% in 2024 and further escalating to 79% in 2025 (IMF). The challenges to debt sustainability and strains on public finances resulting from an ageing population are alleviated by a robust public sector balance sheet, reinforced by substantial pension assets: as of Q1 2023, the total pension assets in Finland amounted to approximately 90% of GDP, with approximately 37% situated within the public sector system. Although debt-servicing costs are increasing, they are still relatively low. Following its peak in 2022, HICP inflation decreased to 4.5% in 2023, primarily due to declining energy prices. The combination of weakened economic activity and Finland's enhanced energy independence in gas has also contributed to this decline. Conversely, the persistent increase in service prices will continue to exert a downward pressure on inflation. Projections indicate that inflation will drop around 2% in 2024 and remain at the same level in 2025.

Finland's GDP per capita – estimated at USD 59,869 (PPP) in 2023 by the IMF - is among the highest in the world and higher than the EU-27 average, allowing the country to offer a high living standard. The distribution of wealth is relatively balanced, although social inequalities have risen in recent years. Finland is the European country most impacted by an ageing population and the fall of its labour force, a phenomenon that weighs heavily on its public finances. Other challenges that the country will be facing are the decreasing productivity in traditional industries and the need for a reduction of high labour costs. Following a good performance in 2022, the unemployment rate rose to 7.3% last year, accompanied by a decrease in the number of job vacancies, though still notably elevated compared to historical norms. Projections indicate that unemployment will reach 7.4% in 2024, before gradually decreasing, as wage growth is expected to decelerate, influenced by the slowdown in the inflation rate and an uptick in employment.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 282.11300.50308.06318.58329.77
GDP (Constant Prices, Annual % Change) 1.3-1.00.41.91.9
GDP per Capita (USD) 50,84754,00855,12756,93158,889
General Government Balance (in % of GDP) -1.0-1.5-1.8-2.2-2.3
General Government Gross Debt (in % of GDP) 73.576.780.082.684.7
Inflation Rate (%) 7.24.31.21.92.0
Unemployment Rate (% of the Labour Force) 6.87.27.67.47.3
Current Account (billions USD) -7.22-3.07-1.86-1.28-0.67
Current Account (in % of GDP) -2.6-1.0-0.6-0.4-0.2

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 GHS 0.240.200.180.170.16

Source: World Bank, 2015

 

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Latest Update: June 2024