2022 OECD Economic Surveys: Finland 2022

image of 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.


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Rebooting the innovation ecosystems

Finland is stepping up its efforts to reboot its innovation ecosystems, which weakened during the long economic stagnation that followed Nokia’s withdrawal from the mobile handset business. The government aims to increase Finland’s R&D spending to 4% of GDP by 2030 and will introduce legislation that commits to large and stable government R&D spending. However, rebooting Finland’s innovation system requires far more than revamping innovation support. Finland needs a clear mission-oriented innovation policy that directs applied research and innovation activities toward solving the most pressing socio-economic challenges. It will also need to strengthen innovation collaboration between the public and private sectors. In particular, concerted efforts toward a more diversified innovation ecosystem that is resilient to firm- and sector specific shocks are essential. To allow for more intensive innovation, the government must increase higher education study places and attract foreign skilled workers to meet the ever-growing demand for skilled workers. It should also help more Finnish firms capture foreign markets, enabling them to reap larger returns from their innovation.



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