Finland’s stagnant growth: IMF calls for further reforms and austerity measures

The International Monetary Fund (IMF) is urging the Finnish government to implement further austerity measures and structural reforms.

In its latest assessment, the IMF acknowledges that Finland's economy has begun to recover from recession, Caliber.Az reports via Finnish media.

However, it also warns that external risks, particularly the ongoing war in Ukraine, continue to cloud the country's economic outlook.

Finland's GDP growth is stagnating compared to other nations. According to the IMF, Finland ranks near the bottom globally for economic performance this year, sharing the tenth spot with Ireland.

While the average economic growth in EU countries is 1.1% this year, Finland's growth has contracted by -0.3%. This marks a significant gap when compared to neighbouring countries like Sweden (0.9%), Norway (1.5%), and Denmark (1.9%).

Alex Pienkowski, head of the IMF’s Finland desk, highlighted that the loss of trade with Russia has severely impacted Finland's economic development, particularly in the construction sector.

"The downturn in the construction sector has been particularly hard on Finland," Pienkowski stated, adding that the war in Ukraine had been a significant blow to Finland's trade relations.

The IMF suggests that the Finnish government focus on strategies that don't necessarily involve cuts to social benefits. Instead, Pienkowski recommends measures that would support long-term economic growth, such as protecting investment, fostering research and development, and supporting higher education.

Jukka Kopra, Chairman of the Parliamentary Defence Committee, believes that Finland’s defence spending will increase as a result of its NATO membership. Under NATO requirements, defence spending must now meet 2% of GDP, with potential for future increases.

Kopra also mentioned that it is realistic to expect Finland to reach 3% of GDP for defence spending in the near future.

He commented on former US President Donald Trump's views on NATO, stating that Trump’s position is likely advocating for European NATO countries to take more responsibility for their own defence.

"Increasing the volume of defence industry is necessary, both to support Ukraine and to meet NATO commitments," Kopra noted.

The Finnish Ministry of Defence estimates that this increase in defence spending could mean an additional billion euros in the defence budget. Finland has already doubled its defence budget in recent years, now standing at approximately six billion euros.

By Tamilla Hasanova