Finland: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Finland

FINLAND IMFCountryReportNo.23/38 January2023 2022ARTICLEIVCONSULTATION—PRESSRELEASE;STAFFREPORT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORFINLAND UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2022ArticleIVconsultationwithFinland,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleasesummarizingtheviewsoftheExecutiveBoardasexpressedduringitsJanuary18,2023,considerationofthestaffreportthatconcludedtheArticleIVconsultationwithFinland. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonJanuary18,2023,followingdiscussionsthatendedonNovember17,2022,withtheofficialsofFinlandoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonDecember20,2022. AnInformationalAnnexpreparedbytheIMFstaff. AStatementbytheExecutiveDirectorforFinland. Thedocumentslistedbelowhavebeenorwillbeseparatelyreleased.FinancialStabilitySystemAssessment TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund PR23/09 IMFExecutiveBoardConcludes2022ArticleIVConsultationwithFinland FORIMMEDIATERELEASE Washington,DC–January23,2023:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withFinlandonJanuary18,2023. Thestrongpost-CovidrecoveryisfalteringduetothespilloversfromRussia’sinvasionofUkraine.Governmentpolicieshashelpedbringoutputbacktothepre-pandemictrendandemploymenttoarecord-highlevel.Butgrowthturnednegativeinthethirdquarterof2022,reflectingthefalloutfromthewar:reducedtradewithRussiaandhigherenergypricesweighing—alongsidehigherinterestrates—onprivateconsumptionandinvestment.Energypricesarepassingthroughtocoreprices,sustaininginflation.Wagegrowthhasremainedmoderate,butrecentagreementsinthepublicsectorpointtopressures. Economicactivityisexpectedtostallin2023.Furthercontractioninprivatedemandisexpectedtobeonlypartiallyoffsetbyhigherpublicspending.Growthisprojectedtostartrecoveringin2024andreturntoasubduedtrendrateofaround1¼,reflectingadversedemographicsandlowproductivitygrowth.Risksareskewedtothedownsidegivenuncertaintiesrelatedtothewar.Headlineinflationisexpectedtoremainatabout4½percentin2023,andtoreturntothe2percenttargetinthemediumterm. Thefiscaldeficitisexpectedtowiden,providingamildstimulusin2023andputtingpublicdebtonariskierpath.Thedeficitsareprojectedtobehigherthanthepre-warpathbyabout1percentagepoint.Thewideningofthe2023deficitreflectstheimpactofmeasurestocompensateforhigherenergypricesalongwithhighersecurity-relatedspending.Thelatterpersistsintothemediumterm.Underunchangedpolicies,thedebtratiowouldincreasefromaround72percentofGDPin2022tocloseto80percentby2028. Thebankingsectoriswell-capitalizedandprofitable,andintermsofsolvency,resilienttoadversemacroeconomicshocks.However,thebankingsectorisalsolarge,concentrated,highlyconnectedwithotherfinancialsystemsintheNordicregion,andheavilyreliantonwholesalefundingwhichexposesittoliquidityshocks.Householddebtremainselevatedandcorporatedebthasalsorisen. ExecutiveBoardAssessment2 ExecutiveDirectorscommendedtheauthorities’decisiveresponsetothespilloversfromRussia’swaragainstUkraine,includingfindingalternativeenergysources.Theyalso 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. 2Attheconclusionofthediscussion,theManagingDirector,asChairmanoftheBoard,summarizestheviewsofExecutiveDirectors,andthissummaryistransmittedtothecountry'sauthorities.Anexplanationofanyqualifiersusedinsummingsupcanbefoundhere:http://www.IMF.org/external/np/sec/misc/qualifiers.htm. 2 welcomedtheadoptionofstructuralreformstoboostemploymentandproductivity.However,theynotedthattheeconomicoutlookhasdeteriorated,andinflationremainselevated.Inthatcontext,Directorsencouragedtheauthoritiestofocustheirpolicyeffortsonenhancingfiscalsustainability,whilecontinuingtoimplementreformsnecessarytoaddressremaining structuralimpediments,reinforcetheresiliencyofthefinancialsystem,andadvanceFinland’sambitiousgreenagenda. Directorsagreedthatfiscalpolicy,inthenearterm,shouldbesupportiveofmonetarypolicy.Theygenerallyconcurredthataslightlytighterfiscalstancerelativeto2022wouldbedesirablein2023andagreedthatsecurityspendingandsupporttothevulnerableshouldbeprioritized.Whileacknowledgingimplementationdifficultiesinashorttimeframe,Dire