IMF Mission Highlights Finland’s Economic Challenges and Prospects

A team from the International Monetary Fund (IMF), led by Alex Pienkowski, completed discussions in Helsinki and Tampere from October 28 to November 7, 2025, as part of the 2026 Article IV Consultation. Their findings indicate that the Finnish economy continues to face significant challenges, characterized by slow productivity growth and weak private demand. The authorities have agreed to the publication of this preliminary statement, which will serve as a basis for a detailed report to be presented to the IMF Executive Board.

The current economic landscape in Finland is marked by an underperforming economy, with a projected fiscal deficit widening to 4.5 percent of GDP in 2024. Although a recovery is anticipated to gather pace in the coming year, several downside risks persist. Key policy priorities for the Finnish government include committing to credible fiscal consolidation to reduce debt over the medium term, enhancing productivity through improvements in tertiary education, and supporting the adoption of artificial intelligence (AI).

Slow Recovery and Fiscal Challenges

Finland’s economic recovery has been sluggish, with growth expected to accelerate only next year. After a contraction in 2023, real GDP increased by 0.4 percent in 2024 but saw a slowdown again in 2025. Contributing factors include heightened uncertainty, falling housing prices, and rising interest rates since 2022, which have negatively impacted private consumption and investment, particularly in construction.

Despite these challenges, net exports have provided some support for growth amidst higher tariffs. For 2025, annual growth is projected at just 0.25 percent, with a more optimistic forecast of 1.5 percent growth expected in both 2026 and 2027. This recovery is anticipated to be driven by rising real wages, a rebound in the housing market, and the initiation of large investment projects.

Inflation remains stable at approximately 2 percent, with headline inflation moderating due to declining energy prices, which have countered stronger core inflation. This price moderation has helped real incomes return to levels seen in 2019, providing a glimmer of hope for consumers.

Urgent Need for Fiscal Consolidation

The deterioration of Finland’s fiscal position raises alarms. The fiscal deficit has expanded significantly, with projections suggesting it will remain broadly unchanged in 2025 due to weak revenue growth and increased defense spending. Public debt levels have already surpassed those of other Nordic countries and are expected to approach 90 percent of GDP.

To address these challenges, the IMF emphasizes the necessity for urgent fiscal consolidation. The authorities are encouraged to aim for a reduction in the fiscal deficit by 0.5 percent of GDP, approximately €1.5 billion, annually until a balanced fiscal position is achieved. This consolidation must be strategic, targeting both revenue enhancements and expenditure efficiencies.

The introduction of a new national fiscal framework, as outlined in the Parliamentary Pact for Fiscal Policy, reflects a strong cross-party commitment to reducing debt over successive parliamentary cycles. If effectively implemented, these rules could strengthen fiscal policy and enhance market confidence.

In addition to fiscal measures, Finland must also focus on increasing labor supply and reducing rigidities in the labor market. Recent reforms have begun to yield positive results, with the government streamlining unemployment benefits and easing regulations to encourage work.

While Finland has a solid foundation for innovative businesses, barriers to scaling up operations hinder productivity growth. The government must review domestic regulations and enhance access to funding to bolster the development of start-up firms. Furthermore, reducing barriers to trade within the European Union (EU) could unlock significant economic benefits, and Finland is urged to champion further European integration.

Overall, the IMF’s findings stress the importance of safeguarding financial stability, noting that while the banking sector remains resilient, vulnerabilities persist. Maintaining a robust macroprudential framework will be vital for ensuring the stability of the financial system as Finland navigates these economic challenges.

The IMF team expressed gratitude for the cooperation of Finnish authorities and stakeholders during this mission, indicating a collaborative approach to address the nation’s economic hurdles.