READ full country note (PDF)
Rising private consumption and investment growth have pulled the economy out of recession. However, output growth is projected to remain sluggish over the coming years, as domestic demand growth is projected to weaken again, although export growth will rise significantly as external demand edges up and competitiveness improves. Unemployment will decline modestly and inflation will pick up only slowly.
Substantial progress has been made on implementing the government’s reform programme. The social partners have agreed on a Competitiveness Pact, which lowers labour costs in 2017, and on wage moderation over the following years. Enhancing labour market flexibility would raise the employment rate further. Health care reform is also moving forward, with the decisions to shift some responsibilities from municipalities to newly-created regional institutions in 2019 and reform funding mechanisms. After easing in 2016, the stance of fiscal policy is set to be broadly neutral in 2017-18.
The room offered by Finland’s low government deficit and debt should be used to support the economy through the tax and social contributions cuts linked to the Competitiveness Pact and through investments in infrastructure. There is room to spend more than currently planned on tertiary education and public R&D, and to provide fiscal incentives for private investment in R&D and staff training.