- Since the 2023 downturn, the economic recovery has been slow as consumption has remained weak and construction investment fell. The fiscal position deteriorated significantly due to weak growth and expenditure increases.
- The economy is set to regain momentum in 2026, supported by private demand. Real GDP is projected to grow by 1.5 percent in 2026 and 2027. But risks are tilted to the downside, primarily from trade tensions and geoeconomic uncertainty.
- Policy priorities are: further fiscal consolidation to put debt on a downward trajectory; enhance macroprudential buffers to maintain financial stability; and structural reforms to enhance growth potential.
Washington, DC:Â The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Finland[1]Â The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]
Since the 2023 downturn, the economic recovery has been slow as consumption has remained weak and construction investment fell. Unemployment continued to increase, largely driven by expanding labor supply, while inflation remained contained at around 2 percent. The banking sector remains sound, but bank credit is subdued despite easing financial conditions. The fiscal position deteriorated significantly due to weak growth and expenditure increases.
The economy is set to regain momentum in 2026, supported by private demand. Real disposable income is projected to strengthen further and underpin a gradual rebound in private consumption, supported by large household saving buffers. Private investment will strengthen as the construction sector slowly recovers and a pipeline of large-scale projects move forward. As a result, real GDP is projected to grow by 1.5 percent in 2026 and 2027. But risks are tilted to the downside, primarily from trade tensions and geoeconomic uncertainty. Inflation is expected to remain close to 2 percent.
Executive Board Assessment[3]
Growth has struggled to rebound since the downturn in 2023. Private consumption was unusually weak, as heightened uncertainty, falling house prices, and still-high interest rates more than offset a modest recovery in real wages. Private investment has also been weak, although recently showed tentative signs of improvement. But growth is expected to strengthen from 2026, as higher real disposable income underpins private consumption growth, private investment gains momentum, and construction sector slowly recovers. Finland’s external position is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
The overall fiscal deficit increased to 4½ percent in 2024 and remained at a comparable level in 2025. While the consolidation efforts since 2024 are projected to improve the structural primary balance somewhat in 2026, the overall deficit is expected to remain above 3 percent, and the debt-to-GDP ratio will reach 95 percent by the end of the decade.
Further consolidation is needed to put debt on a downward trajectory, anchored by the new fiscal framework. Consistent with past advice, the staff recommends consolidation by
½ percent of GDP per year, until the fiscal balance is closed and debt is on a declining path. The new fiscal framework, designed to secure political commitment to multi-year fiscal planning, is expected to anchor this consolidation effort. The size of the fiscal challenge suggests both revenue and expenditure measures should be explored, with a higher share from the latter. Public spending priorities should be revisited, especially for social protection, education, and health spending, and potentially the pension system, supported by regular expenditure reviews. Revenue mobilization should focus on indirect taxes.
Banks’ capital and profitability positions remain strong. Stress tests conclude that systemic risks are contained, and Finnish banks could withstand a severe economic slowdown amid elevated uncertainty and heightened geopolitical tensions. However, banks’ heavy reliance on short-term wholesale funding continue to pose financial stability risks. Sectoral risks remain, as banks continue to have large real estate exposures, housing activity remains weak and the commercial real estate sector continues to face elevated risks. Staff supports the ongoing preparatory work to perform a joint Nordic-Baltic banking sector stress test in 2026, given the high cross-border interconnectedness of the Finnish financial sector.
READ MORE: https://www.imf.org/en/news/articles/2026/01/16/pr-26007-finland-imf-executive-board-concludes-2026-article-iv-consultation
