Finland flag Finland: Economic and Political Overview

The economic context of Finland

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Despite being vulnerable to the international conjuncture, Finland is often cited as a model example for its economic performance, competitiveness and innovative success. After experiencing only a mild contraction in 2020, economic activity had already reached the pre-crisis level in mid-2021. According to IMF estimates, GDP grew by 3% in 2021, underpinned by public and private consumption. The latter should increase further this year, as consumers readjust their consumption patterns and employment and wages grow; resulting in an expected growth of 3%, followed by 1.5% in 2023 as the economic cycle is projected to normalise towards the long-term potential GDP growth rate (IMF forecast).

The position of public finances had improved in recent years; however, the pandemic caused a fall in government revenues and a rise in expenditures (with temporary health-related expenditure and support measures for companies accounting for almost 2% of GDP), prompting the budget deficit to increase to 2.4% in 2021. For 2022, an improvement is expected as most measures fade out and the labour market recovers, resulting in a forecasted deficit of 2.4% (followed by 2% in 2023). The public debt ratio, which increased by 10% following the outbreak of the pandemic surpassing the 60% benchmark of the Maastricht treaty, stood at 72.2% in 2021 and should remain stable this year. Consumer prices rose strongly in 2021, primarily because of a strong upswing in energy prices, with headline inflation estimated at 1.9%. The recovery in the services sector, a tighter labour market and general demand pressures are set to keep inflation at around 1.6% this year and the next, higher than in recent years.

Finland's GDP per capita – estimated at USD 51,867 (PPP) in 2021 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. Unemployment stood at 7.8% in 2021, but it is expected to continue easing towards pre-pandemic levels, with crisis-hit sectors expected to catch up substantially during 2022, when the overall rate should float around 6.8% (IMF).

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 268.81269.56e296.02314.54329.68
GDP (Constant Prices, Annual % Change) 1.3e-2.93.03.01.5
GDP per Capita (USD) 48,71648,78653,52356,83359,545
General Government Balance (in % of GDP) -0.7-2.4-3.1-2.4-2.0
General Government Gross Debt (in % of GDP) 59.569.5e72.272.273.6
Inflation Rate (%) 1.10.41.91.61.6
Unemployment Rate (% of the Labour Force) 6.77.8e7.86.86.7
Current Account (billions USD) -0.842.06-0.301.131.23
Current Account (in % of GDP) -0.30.8-0.10.40.4

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Agriculture represents 2.5% of the Finnish GDP and employs around 4% of the population (World Bank, latest data available). Due to the unfavourable climate, agricultural development is limited to the maintenance of a certain level of self-sufficiency in basic products. Moreover, Finland's accession to the EU has further accelerated the process of restructuring and downsizing of the agriculture sector. The country has around 48,000 farms with 8% of arable land (12% of the country’s arable land is destined to organic cultivations), while 86% of the land area is covered with forests (FAO). Cereal production dominates, followed by milk production and animal husbandry. Dairy farming is the sub-sector that generates the largest turnover. According to figures from the Natural Resources Institute Finland, the 2021 cereal harvest – at 2.6 million tons - was the smallest in the 2000s and was 30% smaller than the average cereal harvest during the previous ten years.

Industry accounts for nearly 24% of GDP, employing roughly 22% of the active population. Forestry is a traditionally well-developed sector for Finland as the country exports a rich variety of goods, ranging from simple wooden products to high-tech tags, labels, paper, cardboard and packaging. Other key industrial sectors are metal production, mechanical engineering and electronic goods. Finland is also specialized in exporting information and communication technologies and is among the countries that invest substantially in R&D (around 2.76% of its GDP, World Bank). According to the latest figures from Statistics Finland, the value of the sold output of industry was EUR 84.1 billion in 2020, falling by nearly one-tenth from the previous year.

The services sector employs three-quarters of the workforce and accounts for 60% of GDP. It is also responsible for generating the largest number of new businesses. The Finnish banking system is dominated by three major groups of deposit banks: OP Group, Nordea Bank Finland, and Danske Bank Plc Group. The information technology sector is growing at a fast pace, and so are the cleantech and biotechnology sectors. Consumption of services has been hardest hit by the restrictions prompted by the spread of the COVID-19 pandemic. Statistics Finland estimates that as of October 2021 (latest data available) the volume of service industries grew by 2% compared to the pre-pandemic level; nevertheless, the adjusted turnover in accommodation and food service activities was 4.2% lower, in transportation and storage was 6.8% lower and in arts, entertainment and recreation activities was 20.7% lower than their pre-COVID-19 level.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 3.8 21.6 74.6
Value Added (in % of GDP) 2.5 24.0 60.0
Value Added (Annual % Change) -2.8 -1.2 -3.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
76,1/100
World Rank:
17
Regional Rank:
10

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
8.10/10
World Rank:
10/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

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Latest Update: June 2022

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