OECD Economic Surveys: Finland 2022
Russia’s war of aggression against Ukraine has darkened the short-term economic outlook for Finland and increased the urgency of transitioning away from fossil energy. The Finnish economy is likely to contract over coming quarters, weighed down by high inflation, tightening monetary conditions and curtailment of Russian gas supplies to trading partner economies, but to recover in 2024 as these headwinds pass. The war has also worsened public finances, delaying needed consolidation measures to rebuild buffers to cope with future shocks and put public finances on a sustainable path. While Finland is on track to meet its gross greenhouse gas emissions abatement objectives, there is scope to reduce abatement costs, notably by replacing inefficient measures by a comprehensive carbon tax in the effort-sharing sector. New measures will also be needed to meet the forestry and other land-use targets, which are very challenging. Rebooting innovation ecosystems would help to increase Finland’s low productivity growth. This will entail not only increasing R&D spending, but also establishing a mission-oriented innovation policy and a more diversified innovation ecosystem, strengthening synergies between export promotion and innovation, and above all, increasing the supply of skilled workers.
SPECIAL FEATURE: REBOOTING INNOVATION ECOSYSTEMS
Also available in: French
Key policy insights
The Finnish economy recovered rapidly from the pandemic but now faces deteriorating global conditions, especially since Russia’s war of aggression against Ukraine. Inflation has soared, reducing disposable incomes, exports have weakened and the investment environment has become less favourable. Finland is well placed to cope with the loss of energy supplies from Russia, although replacing gas in industrial uses with other energy sources will take time. Monetary conditions are becoming less accommodative and the structural budget deficit has increased, mainly owing to expenditures related to the Russia’s war against Ukraine. Fiscal consolidation is required to meet Finland’s medium-term objective and to stabilise the debt-to-GDP ratio over the longer run. To close the gap in living standards with the other Nordics, reforms are needed to boost productivity growth, especially to strengthen innovation, and to raise the employment rate. Finland is on track to meet its gross greenhouse gas emissions abatement objectives, but not the forestry and other land-use sink targets needed to meet the 2030 EU effort-sharing target for this sector and the 2035 net zero emissions target stipulated in the Climate Change Act. There is considerable scope to increase the efficiency of greenhouse gas emissions abatement measures.
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