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How would higher defence spending affect Finland’s economic growth?

Along with many other European countries, Finland intends to increase its defence spending. This would increase Finland’s public expenditure and spur economic growth. The larger the share of defence procurements purchased from within the euro area, the more favourable the impact.

Climate change and biodiversity loss as systemic threats to financial stability in Finland

Climate change and biodiversity loss pose threats to financial stability. The financial sector in Finland seems to have less exposure to emissions-intensive businesses than in many other euro area countries, but the risks surrounding the transition to carbon neutrality can hardly be avoided in Finland either.

Impact of geopolitical surprises on euro area inflation varies case by case

Geopolitics can bring about volatility in inflation and in the rest of the economy. However, geopolitical surprises and their consequences are not particularly well understood yet in economics. The impact of such surprises on euro area inflation nevertheless varies case by case.

Will the euro area’s robust employment growth continue?

Employment has grown strongly in the euro area since 2020. This has been attributable to both demand and supply factors. In the near future, population ageing will reduce the supply of labour in the euro area. The impact of population ageing will nevertheless be softened by a rise in the labour force participation rate, work-based immigration and a reduction in structural unemployment.

Impact of ECB’s policy rate changes on corporate loan rates varies strongly across countries

A considerable proportion of the corporate loan stock in the euro area consists of loans with a fixed – rather than a variable – rate of interest. However, this proportion differs by industry and even more so by country. In Germany and France, the majority of corporate loans are tied to a fixed rate. In Finland, the proportion of fixed rate loans is small.

Recent insights into r*: An analysis using a modified Holston-Laubach-Williams model

It is well known that the real natural rate of interest, r*, is an inherently unobservable variable, and therefore reasonable estimates of its level are hard to determine. In our search for such estimates, we first apply a semi-structural model by Holston, Laubach and Williams (2023) and the Federal Reserve Bank of New York’s recent estimate of the euro area natural rate.

Finland’s banking sector could withstand even a harsher recession than forecast

The capital position of Finland’s banking sector is expected to strengthen in the immediate years ahead, provided that interest rates and the economy develop in line with forecasts. In a very severe economic crisis, the capital position would weaken significantly but would still remain adequate.

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