The economy is slowly coming out of a long recession. Economic activity was broadly flat in 2015, but is projected to strengthen in 2016. Export growth remains subdued despite the weaker euro, as global demand for capital goods has weakened and exports to Russia have collapsed. Domestic demand is being held back by rising unemployment, low income growth, weak confidence and ample spare capacity.
The budget deficit has risen above 3% of GDP for the first time since the mid-1990s. The government’s consolidation package, which is mainly based on spending cuts, will reduce the deficit, but only gradually because of the weakness of the economy. Structural reforms are essential to revive growth, ensure long-term fiscal sustainability and generate resources to support well-being.
Finland’s long-standing use of economic incentives, especially taxation, to promote green growth has considerably reduced the intensity of greenhouse gas emissions since 1990. Ambitious emission reduction targets call for the implementation of further costefficient measures, including phasing out environmentally harmful subsidies and exceptions to carbon taxation, and ensuring the efficiency of environmental regulations and direct support.