Economic and Political Overview

flag Finland Finland: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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 in 2020, economic activity had already reached the pre-crisis level in mid-2021. According to IMF estimates, GDP grew by 3% in 2021, underpinned by public and private consumption. The latter should increase further this year, as consumers readjust their consumption patterns and employment and wages grow; resulting in an expected growth of 3%, followed by 1.5% in 2023 as the economic cycle is projected to normalise towards the long-term potential GDP growth rate (IMF forecast).

The position of public finances had improved in recent years; however, the pandemic caused a fall in government revenues and a rise in expenditures (with temporary health-related expenditure and support measures for companies accounting for almost 2% of GDP), prompting the budget deficit to increase to 2.4% in 2021. For 2022, an improvement is expected as most measures fade out and the labour market recovers, resulting in a forecasted deficit of 2.4% (followed by 2% in 2023). The public debt ratio, which increased by 10% following the outbreak of the pandemic surpassing the 60% benchmark of the Maastricht treaty, stood at 72.2% in 2021 and should remain stable this year. Consumer prices rose strongly in 2021, primarily because of a strong upswing in energy prices, with headline inflation estimated at 1.9%. The recovery in the services sector, a tighter labour market and general demand pressures are set to keep inflation at around 1.6% this year and the next, higher than in recent years.

Finland's GDP per capita – estimated at USD 51,867 (PPP) in 2021 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 7.8% in 2021, but it is expected to continue easing towards pre-pandemic levels, with crisis-hit sectors expected to catch up substantially during 2022, when the overall rate should float around 6.8% (IMF).

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 271.61297.58281.41283.51292.46
GDP (Constant Prices, Annual % Change) -2.23.02.10.51.1
GDP per Capita (USD) 4953505152
General Government Balance (in % of GDP) -3.3-2.4-2.0-1.6-1.9
General Government Gross Debt (in % of GDP) 69.066.266.767.469.6
Inflation Rate (%) 0.42.16.53.51.8
Unemployment Rate (% of the Labour Force) 7.87.67.07.47.4
Current Account (billions USD) 1.752.72-2.18-0.70-0.46
Current Account (in % of GDP) 0.60.9-0.8-0.2-0.2

Source: IMF – World Economic Outlook Database, Latest available data

Note: (e) Estimated Data

 

Main Sectors of Industry

Agriculture represents 2.5% 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 cultivations), 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 Finland, the 2021 cereal harvest – at 2.6 million tons - was the smallest in the 2000s and was 30% smaller than the average cereal harvest during the previous ten years.

Industry accounts for nearly 24% 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 2.76% of its GDP, World Bank). According to the latest figures from Statistics Finland, the value of the sold output of industry was EUR 84.1 billion in 2020, falling by nearly one-tenth from the previous year.

The services sector employs three-quarters of the workforce and accounts for 60% 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. Consumption of services has been hardest hit by the restrictions prompted by the spread of the COVID-19 pandemic. Statistics Finland estimates that as of October 2021 (latest data available) the volume of service industries grew by 2% compared to the pre-pandemic level; nevertheless, the adjusted turnover in accommodation and food service activities was 4.2% lower, in transportation and storage was 6.8% lower and in arts, entertainment and recreation activities was 20.7% lower than their pre-COVID-19 level.

 
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) 2.5 24.0 60.0
Value Added (Annual % Change) -2.8 -1.2 -3.6

Source: World Bank, Latest available data.

 

Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom

Definition:

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.

Score:
76,1/100
World Rank:
17
Regional Rank:
10

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

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.

Score:
8.10/10
World Rank:
10/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Sauli Niinistö (since 1 March 2012; re-elected for a second six-year term on 28th January 2018)
Prime Minister: Sanna Marin (since 10 December 2019) - Social Democratic Party
Next Election Dates
Presidential: January 2024
Parliament: April 2023
Current Political Context
Since December 2019, Sanna Marin from the Social Democrat (SDP) is leading a centre-left coalition with four other parties – the Centre Party (KESK), the Green League (VIHR), the Left Alliance (VAS) and the Swedish People’s Party (SFP, centre). The five-party coalition focused its action on the containment of the COVID-19 pandemic and on environmentally oriented policies, supporting green industries and technologies.
Lately, the right-wing opposition party National Coalition has been gaining popularity, overtaking the Social Democrats in polls as the main party in the country.
Main Political Parties
Finland has a multi-party system to ensure a single party does not have a chance to gain power alone. Parties work with each other to form coalition governments. The Social Democtratic Party, Finns, and National Coalition Party obtained a similar result in the most recent national elections (40, 39 and 38 seats, respectively). The largest parties include:

- Social Democratic Party (SDP): centre-left
- The Finns (PS): left-wing, nationalist
- National Coalition Party (KOK): centre-right, liberal conservatism, strongly pro-European
- Centre Party (KESK): centre, wields political influence in smaller agrarian communities
- Green Party (VIHR): centre, green politics, liberal
- Left Alliance (VAS): left-wing
- Swedish People's Party (RKP): centre, represents the minority of Swedish speaking people in Finland
- Christian Democrats (KD): centre/centre-right
- The Blue Reform (ST): right, liberal, conservative, soft Eurosceptic.
Type of State
Finland is a democratic parliamentary republic.
Executive Power
The President of Finland is the Head of State, leader of foreign policy, and the commander-in-chief of the defence forces. He/she is directly elected by absolute majority for a six-year term, renewable once. The President appoints the Prime Minister. The main executive power lies in the Cabinet which is appointed and headed by the Prime Minister. Before the constitutional rewrite completed in 2000, the President enjoyed more power.
Legislative Power
Legislative power is vested in the Parliament of Finland (Eduskunta), with the Government holding limited rights to amend or extend legislation. It is composed of 200 deputies elected for four years by proportional representation. The President has the power of veto over parliamentary decisions although it can be overrun by the parliament.
 

Indicator of Freedom of the Press

Definition:

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.).

World Rank:
2/180
 

Indicator of Political Freedom

Definition:

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.

Ranking:
Free
Political Freedom:
1/7
Civil Liberties:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

COVID-19 epidemic evolution

To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Finland, visit the website of the Finnish Institute for Health and Welfare which provides the official data.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.

Sanitary measures

To find out about the latest public health situation in Finland and the current sanitary measures in vigour, please consult the website of the Finnish Ministry of Social Affairs and Health, as well as the dedicated page on the website of the Finnish Government.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

For the information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the portal of the Finnish Custom Authority (Tulli).
The “Guidelines for border management measures to protect health and ensure the availability of goods and essential services” issued by the European Commission can be consulted
here.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Finland on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the information on the economic recovery scheme put in place by the Finnish government to address the impact of the COVID-19 pandemic on the national economy, please visit the portal of the Finnish Ministry of Finance and that of the Ministry of Economic Affairs and Employment.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the websites of the
European Commission and the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Finnish government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Finland in the
IMF’s Policy Tracker platform.

Support plan for businesses

For the information on the local business support scheme established by the Finnish government to help businesses, consult the website of the Ministry for Economic Affairs and Employment, which provides instructions on business financing, on support available to sole entrepreneurs, and on entrepreneurs’ right to social security. Further information can be found on the website of the Finnish employers’ organization Yrittäjät and on that of Business Finland.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters

For the up-to-date information on possible support plans for exporters in Finland, if applicable, please consult the website of the Finnish Ministry of the Economy and that of the national export credit agency Finnvera.
The European Commission adopted a Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the State where needed.

 

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Latest Update: November 2022