This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

Finland recovered rapidly from the COVID-19 shock but growth stalled following Russia’s war of aggression against Ukraine. Soaring inflation has reduced household disposable income in Finland and its trading partners, slowing the economy. Finland has been able to replace most of the lost Russian energy supplies.

The Finnish economy recovered rapidly from the pandemic but now faces deteriorating global conditions, especially since Russia’s war of aggression against Ukraine. Inflation has soared, reducing disposable incomes, exports have weakened and the investment environment has become less favourable. Finland is well placed to cope with the loss of energy supplies from Russia, although replacing gas in industrial uses with other energy sources will take time. Monetary conditions are becoming less accommodative and the structural budget deficit has increased, mainly owing to expenditures related to the Russia’s war against Ukraine. Fiscal consolidation is required to meet Finland’s medium-term objective and to stabilise the debt-to-GDP ratio over the longer run. To close the gap in living standards with the other Nordics, reforms are needed to boost productivity growth, especially to strengthen innovation, and to raise the employment rate. Finland is on track to meet its gross greenhouse gas emissions abatement objectives, but not the forestry and other land-use sink targets needed to meet the 2030 EU effort-sharing target for this sector and the 2035 net zero emissions target stipulated in the Climate Change Act. There is considerable scope to increase the efficiency of greenhouse gas emissions abatement measures.

Finland is stepping up its efforts to reboot its innovation ecosystems, which weakened during the long economic stagnation that followed Nokia’s withdrawal from the mobile handset business. The government aims to increase Finland’s R&D spending to 4% of GDP by 2030 and will introduce legislation that commits to large and stable government R&D spending. However, rebooting Finland’s innovation system requires far more than revamping innovation support. Finland needs a clear mission-oriented innovation policy that directs applied research and innovation activities toward solving the most pressing socio-economic challenges. It will also need to strengthen innovation collaboration between the public and private sectors. In particular, concerted efforts toward a more diversified innovation ecosystem that is resilient to firm- and sector specific shocks are essential. To allow for more intensive innovation, the government must increase higher education study places and attract foreign skilled workers to meet the ever-growing demand for skilled workers. It should also help more Finnish firms capture foreign markets, enabling them to reap larger returns from their innovation.