Finland: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Finland

2025ARTICLE IV CONSULTATION—PRESS RELEASE;STAFF REPORT; AND STATEMENT BY THE EXECUTIVEDIRECTOR FORFINLAND Under Article IV of the IMF’s Articles of Agreement, the IMF holdsbilateral discussionswith members, usually every year. In the context of the2025Article IV consultation withFinland, the following documents have been released and are included in this package: •APress Releasesummarizing the views of the Executive Board as expressed during itsJanuary 15, 2025consideration of the staff report that concluded the Article IVconsultation withFinland. •TheStaff Reportprepared by a staff team of the IMF for the Executive Board’sconsideration onJanuary 15, 2025, following discussions that ended onNovember 8, 2024,with the officials ofFinlandon economic developments andpolicies. Based on information available at the time of these discussions, the staffreport was completed onDecember 12, 2024. •AnInformational Annexprepared by the IMFstaff. •AStatement by the Executive DirectorforFinland. TheIMF’s transparency policy allows for the deletion ofmarket-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Copies of this report are available to the public from International Monetary Fund•Publication ServicesPO Box 92780•Washington, D.C. 20090Telephone: (202) 623-7430•Fax: (202) 623-7201E-mail:publications@imf.org Web:http://www.imf.org International Monetary FundWashington, D.C. IMF Executive Board Concludes 2025 Article IV Consultationwith Finland FOR IMMEDIATE RELEASE Washington, DC–January 21, 2025:On January 15, the Executive Board of the InternationalMonetary Fund (IMF) concluded the Article IV consultation1with Finland. The Finnish economy is recovering from the 2023 recession, supported by easing inflation and realwage growth. However, the rebound is hindered by stagnant construction investment and weakexternal demand. Employment remains robust, driven by lower real wages, increased immigration,higher public employment, and increased participation rates. Inflation has temporarily fallen below2 percent, reflecting declining energy prices and subdued domestic demand. The economy is projected to have contracted by 0.3 percent in 2024 before rebounding to around1½ percent in 2025, as private investment and consumption recover alongside easing interest ratesand stabilizing house prices. External demand will pick up somewhat but will be offset by strongerimports. Risks remain tilted to the downside, with intensification of regional conflicts andgeopolitical fragmentation. Structural challenges, such as adverse demographics and lowproductivity growth, weigh on the medium-term outlook. Supported by the recent VAT hike andrecovering domestic demand, inflation is expected to stabilize around 2 percent in 2025. Executive Board Assessment23 Directors welcomed Finland’s strengthening growth momentum following the 2023 recession andthe decline in inflation. However, the outlook is clouded by longstanding structural challenges,including from low productivity growth and aging population, and risks are tilted to the downside,particularly on the external front. To strengthen the economy’s resilience, Directors highlighted theneed to ensure fiscal sustainability and financial stability, while implementing structural reformsfocused on boosting potential growth. Directors commended the authorities’ ongoing fiscal efforts, while emphasizing the need foradditional consolidation to reverse public debt dynamics amid pressures from defense andaging-related spending. They concurred that the adjustment should involve both spending andrevenue measures, while protecting productivity-enhancing spending, including public investments,education, and R&D. Directors were encouraged by the resilience of the banking system but noted remaining pockets ofvulnerability, including from high reliance on wholesale funding, household indebtedness, andcross-border risks. They welcomed the reinstatement of the systemic risk buffer and recommendedfurther strengthening of the macroprudential toolkit. Directors commended Finland’s initiative inconducting joint Nordic and Baltic-wide banking sector stress tests, and urged continuedmonitoring of financial stability risks related to non-bank financial institutions. They also encouragedfurther strengthening the AML/CFT framework. Directors agreed that structural reforms are essential for enhancing Finland’s potential growth. Theywelcomed the recent labor market reforms, and encouraged further efforts to increase labor forceparticipation rates, reduce skill mismatches, and address the steep decline in average hours workedsince the pandemic. Exploring further measures to improve productivity, including by easing accessto risk capital, reviewing barriers to entry into the services sector, and promoting the deepening ofthe European Single Market, will also be key. Directors considered that strengthening the role ofcarbon sin