IMF国际货币组织全球-Finland_2019-Article-IV-Consultation_56页_2mb

Finland 2019 Article IV Consultation Summary

Core Content

The 2019 Article IV consultation with Finland by the IMF concluded on January 9, 2020, following discussions in Helsinki from November 6 to November 18, 2019. The consultation focused on Finland's economic performance, fiscal and structural policies, and the risks to its growth and stability.

Main Economic Developments

• Economic Performance: After a long recession, Finland's economy showed solid growth, averaging around 2.5% annually from 2016 to 2018. However, growth slowed in 2019, with an average of 1.4% year-on-year in the first three quarters. The unemployment rate dropped to 6.5% in 2019, close to historical lows, but labor productivity growth remained weak.
• Growth Outlook: Growth is expected to remain around 1.5% in 2019 and 2020 before converging to a potential growth rate of about 1.25%. The economy faces downward risks, including the potential for cyclical employment gains and a decline in external demand.
• Inflation: Inflation has remained low, with HICP inflation at around 1% in 2019. It is projected to gradually rise to approach 2% by 2024, driven by increasing service sector wages and a decline in spare capacity.
• Fiscal Policy: The 2019 budget implies a fiscal expansion, with the headline government balance expected to decrease to -1.25% of GDP by 2020. The government's medium-term target of a structural balance of -0.5% of GDP is not expected to be met, as the deficit is projected to be around 1% of GDP in 2023.
• Debt Levels: Gross debt is expected to reach 60% of GDP by 2024, while net debt is projected to decrease. However, net financial worth is expected to drop significantly due to asset sales.
• Current Account: The current account deficit averaged -1.25% of GDP over the past four years. It is projected to remain moderate, with a gap of around -1.5% of GDP in 2019, implying a real exchange rate overvaluation of about 5%.
• Labor Market: The labor force participation rate reached 67%, close to Nordic peers. Employment increased, but the participation rate could revert to historical means, leading to a potential annual decline in labor supply of between 25% and 50% over the next decade.

Key Policy Issues

A. Structural Policies

• The government aims to increase employment to 75% by 2023, up from 72.6% in 2019, which would require an additional 60,000 jobs.
• The effectiveness of wage subsidies is uncertain. Alternative measures include improving tax and benefit incentives for women, older workers, and those out of the workforce.
• The government is targeting carbon neutrality by 2035 through emission reductions and increased renewable energy support.

B. Fiscal Policies

• The fiscal expansion is expected to support demand in the short term, but offsetting measures will be necessary to meet the medium-term fiscal target.
• The government has committed to spending increases on education, employment, and climate policies, which may require additional savings through tax reforms or cost control in health and social services.
• The fiscal plan delays consolidation, with potential one-off spending items that could compromise medium-term fiscal sustainability.

C. Financial Sector and Macroprudential Policies

• The banking system is well capitalized and profitable, but some borrowers, particularly those with housing company loans and consumer credit, face vulnerabilities.
• The recent recommendation to limit household debt to income is in line with international practices, but the tax code needs to be addressed to reduce incentives for housing company loans.
• Improved data collection and transparency are essential for monitoring financial risks.

Key Risks

• Downward Risks:
  • Potential for cyclical employment gains.
  • Further deterioration in external demand due to trade disputes.
  • Weaker domestic absorption.
• External Risks:
  • Trade tensions could affect terms of trade.
  • The banking sector has complex cross-border exposures, making it vulnerable to external disruptions and real estate market corrections in the Nordic region.

Summary of Economic Indicators (2017–2025)

Key Takeaways

• Finland's economy has shown resilience post-recession but faces challenges in sustaining growth and managing fiscal and external risks.
• Structural reforms and fiscal adjustments are crucial to achieving the government's employment and carbon neutrality targets.
• The current account remains moderately weaker than fundamentals, and the real exchange rate is overvalued.
• Household debt and productivity growth are key areas of concern, with the need for policy interventions to address these issues.