Finland: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
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Despite being vulnerable to the international conjuncture, Finland is often cited as a model example for its economic performance, competitiveness and innovative success. After experiencing only a mild contraction following the COVID-19 pandemic, economic activity had already reached its pre-crisis level in mid-2021. According to IMF estimates, GDP grew 2.1% in 2022 (from +3% one year earlier) driven by strong public and private consumption (the latter being underpinned by buoyant demand for services and a strong labour market), as well as by a build-up of inventories. Finland was severely affected by the consequences of the Russia-Ukraine conflict: following its application to join NATO, Russia terminated gas and electricity exports. In this context, high energy prices and inflation, together with weaker external demand, will have a negative impact on the country’s performance, with growth projected at 0.5% in 2023, before it rebounds to 1.1% the following year (IMF – 0.2% and 1.4%, respectively, according to the EU Commission).
Finland’s public finances are generally solid, despite recording public deficits following the COVID-19 pandemic and the war in Ukraine (the Finnish government announced additional spending on defence of 0.3% of GDP in 2022 and 0.4% in 2023). According to the latest figures from the IMF, the government budget recorded a deficit of 2% in 2022, which is projected to improve only slightly this year (-1.6% of GDP) due to the measures taken to mitigate the economic and social impact of high energy prices (0.4% of GDP). Similarly, the general government public debt-to-GDP ratio increased to 66.7% in 2022 (from 66.2% one year earlier) and should follow an upward trend over the forecast horizon (67.4% and 69.6% in 2023 and 2024, respectively – IMF). Energy prices contributed to an unprecedented inflation rate of 6.5% in 2022; however, weaker economic activity and lower energy costs are projected to bring the inflation rate down to 3.5% in 2023 and 1.8% in 2024.
Finland's GDP per capita – estimated at USD 58,659 (PPP) in 2022 by the IMF - is among the highest in the world and higher than the EU-27 average, allowing the country to offer a high living standard. The distribution of wealth is relatively balanced, although social inequalities have risen in recent years. Finland is the European country most impacted by an ageing population and the fall of its labour force, a phenomenon that weighs heavily on its public finances. Other challenges that the country will be facing are the decreasing productivity in traditional industries and the need for a reduction of high labour costs. Unemployment stood at 7% in 2022 (from 7.6% one year earlier). The weakening economic conditions, which are already translating into a lower number of vacancies, imply a temporary increase in the unemployment rate in 2023 and 2024 (around 7.4% according to the IMF projections).
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 271.67 | 296.59 | 281.05 | 301.67 | 310.61 |
| GDP (Constant Prices, Annual % Change) | -2.4 | 3.0 | 2.1 | 0.0 | 1.3 |
| GDP per Capita (USD) | 49,168 | 53,595 | 50,655 | 54,351 | 55,957 |
| General Government Balance (in % of GDP) | -3.3 | -2.2 | -1.9 | -2.2 | -2.2 |
| General Government Gross Debt (in % of GDP) | 74.8 | 72.6 | 74.8 | 74.5 | 75.9 |
| Inflation Rate (%) | 0.4 | 2.1 | 7.2 | 5.3 | 2.5 |
| Unemployment Rate (% of the Labour Force) | 7.8 | 7.6 | 6.8 | 7.5 | 7.5 |
| Current Account (billions USD) | 1.51 | 1.27 | -11.92 | -10.18 | -6.80 |
| Current Account (in % of GDP) | 0.6 | 0.4 | -4.2 | -3.4 | -2.2 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
Agriculture represents 2.3% of the Finnish GDP and employs around 4% of the population (World Bank, latest data available). Due to the unfavourable climate, agricultural development is limited to the maintenance of a certain level of self-sufficiency in basic products. Moreover, Finland's accession to the EU has further accelerated the process of restructuring and downsizing of the agriculture sector. The country has around 48,000 farms with 8% of arable land (12% of the country’s arable land is destined to organic cultivation), while 86% of the land area is covered with forests (FAO). Cereal production dominates, followed by milk production and animal husbandry. Dairy farming is the sub-sector that generates the largest turnover. According to figures from the Natural Resources Institute, after two weaker years, Finland’s cereal harvest returned to an average level in 2022, at nearly 3.6 million tons.
Industry accounts for 24.6% of GDP, employing roughly 22% of the active population. Forestry is a traditionally well-developed sector for Finland as the country exports a rich variety of goods, ranging from simple wooden products to high-tech tags, labels, paper, cardboard and packaging. Other key industrial sectors are metal production, mechanical engineering and electronic goods. Finland is also specialized in exporting information and communication technologies and is among the countries that invest substantially in R&D (around 2.94% of its GDP, World Bank). According to Statistics Finland, the value of the sold output of industry was around EUR 92.8 billion in 2021. The share of metal industry products of the total value of the sold output was around 44%, that of forestry 21%, followed by the chemical industry (18%) and food products (10%).
The services sector employs three-quarters of the workforce and accounts for 59.8% of GDP. It is also responsible for generating the largest number of new businesses. The Finnish banking system is dominated by three major groups of deposit banks: OP Group, Nordea Bank Finland, and Danske Bank Plc Group. The information technology sector is growing at a fast pace, and so are the cleantech and biotechnology sectors. The latest data by Statistic Finland shows that in the first half of 2022 the volume of service industries grew by 17% compared to one year earlier.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 3.8 | 21.6 | 74.6 |
| Value Added (in % of GDP) | 2.3 | 24.6 | 59.8 |
| Value Added (Annual % Change) | -4.5 | 2.8 | 3.7 |
Source: World Bank, Latest data available.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
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The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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