The International Monetary Fund (IMF) said the Finnish economy recovered quickly from the pandemic, but Russia's invasion of Ukraine worsened prospects as high inflation and rising interest rates negatively affected household purchasing power and investment. According to IMF forecasts, the country's GDP shrank by 0.5% in 2023, but a recovery in household purchasing power, along with easing financial conditions, is expected to support a modest recovery in 2024, with growth projected to be 0.5%.
Meanwhile, the IMF called on the government to take further action to balance public finances. "Fiscal policy should focus on putting debt on a declining path through a gradual but sustained fiscal adjustment. Structural reforms should center on labor markets: reducing skills mismatches, encouraging employment, and boosting productivity," the IMF said.
"The deficit is expected to have increased to 2.5% of GDP in 2023, primarily due to higher discretionary spending. Gross public debt is expected to have reached 75%, further exceeding Nordic peers. Deficits are projected to remain substantial over the medium-term," the IMF warned.
As for the inflation outlook, the IMF said that supported by modest wage growth, negative base effects, and a growing output gap, headline inflation is expected to remain below 2% in 2024, gradually recovering over the medium-term.