Finland recovered rapidly from the COVID-19 shock but growth has stalled following Russia’s war of aggression against Ukraine. Soaring inflation has reduced household disposable income in Finland and its trading partners, slowing the economy, according to a new OECD report.
The latest Economic Survey of Finland says policies to assist vulnerable households should be targeted while ensuring that the structural budget position does not deteriorate. Fostering a stronger recovery and sustaining the country’s high living standards will require measures to boost productivity, employment and innovation.
To close the gap in living standards with the other Nordic countries, productivity growth must increase and the employment rate rise, notably for older workers. Addressing the structural shortage of skilled workers through tertiary education and migration reforms is critical for strengthening productivity growth.
The Survey projects that the Finnish economy is likely to contract over the coming quarters, weighed down by high inflation, tightening monetary conditions and curtailment of Russian gas supplies to trading partner economies. It projects Finland’s GDP growing at 2.2% in 2022, falling by 0.3% in 2023, then bouncing back by 1.1% in 2024, as these headwinds pass.
Underlying conditions are expected to remain challenging over the coming two years, according to the Survey. Consumption will weaken in response to falling real wages, but subsequently recover as wages rise. Export growth will fall along with export markets, which are being hit by the reduction in gas supplies from Russia, but will pick up as alternative energy sources are found. Business investment will remain weak through 2023, owing to weak economic activity and a more uncertain economic outlook, but strengthen in 2024 as the global outlook improves. The unemployment rate should peak at around 8%, and only fall slightly by end-2024. Annual inflation will fall from 7% projected in 2022 to 3.1% in 2024, when the energy shock will have passed.
The economic slowdown has worsened public finances, delaying government action to stabilize the debt-to-GDP ratio in the long run. The OECD supports Finland’s plan to achieve a structural budget deficit of 0.5% of GDP by the end of the decade.
While Finland is on track to meet its gross greenhouse gas emissions objectives, there is scope to reduce the costs of reducing emissions, notably by reducing reliance on biofuels and increasing reliance on carbon pricing and measures to reduce car dependence in cities. New measures will be needed to meet forestry and other land-use targets, which remain 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 clear objectives for applied research funding 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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- 338,145 km2
- 5,614,571 (2023 est.) (CIA World Factbook)
- Government type
- parliamentary republic
- Finnish (official) 86.5%, Swedish (official) 5.2%, Russian 1.6%, other 6.7% (2021 est.) (CIA World Factbook)
- 297.3 billion (2021) current US$ (Worldbank)
- Growth rate
- GDP growth +3.0% (2021) (Worldbank et Coface) / Real GDP growth rate +2.97% (2021 est.) (CIA World Factbook)
Economic growth is projected to slow sharply because of Russia’s war of aggression against Ukraine, with a 0.3% contraction in 2023, before recovering to 1.1% in 2024. Consumption will weaken in response to falling real wages but subsequently recover as inflation moderates and wages rise. Export growth will decline markedly with weaker demand in export markets but then pick up as they strengthen.
Fiscal consolidation is needed both to support monetary policy tightening and to put medium- and long-term public finances on a sustainable path. A comprehensive public spending review should be undertaken to identify consolidation measures. State aid to companies that does not enhance productivity should be reduced. Labour market regulations should be made less restrictive to facilitate greater employment and innovation.
Source: Economic Forecast Summary (November 2022) - Finland Economic Snapshot - OECD
Source: IMF Statistics - Finland
Relationships with Luxembourg
Existing conventions and agreements
Non double taxation agreement
In order to promote international economic and financial relations in the interest of the Grand Duchy of Luxembourg, the Luxembourg government negotiates bilateral agreements for the avoidance of double taxation and prevent fiscal evasion with respect to Taxes on Income and on fortune with third countries.
- Convention from 01.03.1982 (Memorial 1982, A no.95, p.1967)
- Effective as of 01.01.1980 (Memorial 1982, A no.95, p.1967)
- Protocol of Amendment from 24.01.1990 (Memorial 1992, A no.16, p.734)
- Effective as of 01.01.1990 (Memorial 1992, A no.16, p.734)
- Protocol of Amendment from 01.07.2009(Memorial 2010, A no.51, p.901)
- Effective as of 01.01.2011 (Memorial 2010, A no.51, p.901)
Air Services agreement
- Agreement from 15.08.1961 (Memorial 1965, A, p.294)
- Effective as of 05.20.1965
The Statec Foreign Trade statistics provide information on the trade of goods - by product and by country. This information is collected respectively through the INTRASTAT declaration and on the basis of customs documents.
You can see the statistics on the website of the Statec.
Contact points in Finland
Embassy of the Grand Duchy of Luxembourg in Finland
Ambassador with residence in Copenhagen: Mr Henri SCHUMACHER
05, Fridtjof Nansens Plads
DK - 2100 Copenhagen
Honorary Consul with jurisdiction over Finland:
Mr Christoffer WASELIUS
Tel.: +358 50 595 7255
Honorary Consulate of Finland in Luxembourg:
Mr Tom KRIEPS – Honorary Consul
Consulat honoraire de Finlande
9 rue des Trévires
Phone: +352 621 16 18 04
Country risk as defined by Coface
Ducroire is the only credit insurer covering open account deals in over 200 countries. A rating on a scale from 1 to 7 shows the intensity of the political risk. Category 1 comprises countries with the lowest political risk and category 7 countries with the highest. Macroeconomics experts also assess the repayment climate for all buyers in a country.