Finland’s export growth has fallen behind the growth in world trade. The reasons for this include not only the unfavourable structure of Finnish exports, but also the insufficient ability of Finnish companies to export products that stand out from the competition.
The discontinuation of trade with Russia has not had a major impact on Finland’s economy as a whole. The collapse of exports to Russia has not reduced overall exports in the case of many goods, because exports to other countries have increased.
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.
The regulatory and supervisory tightening since the global financial crisis has protected banks from new crises. Research findings indicate that the benefits achieved through regulation and macroprudential policy have exceeded the disbenefits.
The anchoring of expectations and the moderation of energy and food inflation are contributing to reducing the rate of inflation. The tight labour market and the rise in wages to compensate for higher prices are nevertheless still keeping inflation above the 2% target.
The revised EU fiscal rules aim to improve primary balances and consequently strengthen the debt sustainability of EU Member States.The sustainability of government debt levels depends on the size of the interest rate-growth differential and primary balances.
The instability seen in crypto-asset markets has had very little effect on the global financial system, but the growing and partially hidden linkages between markets are a cause for concern.
Fluctuations in the current account are caused by energy prices, in particular. An increase in domestic electricity production will not be enough alone to turn the energy account around into surplus. The deep deficit on the services account will not necessarily be improved quickly.
Inflation expectations are of key significance for price trends. Expectations regarding the future rate of inflation will affect price setting by businesses and the wage demands of employees.
Last December, the ECB announced that it will review how it is to control interest rates in the future. The outcome of the review will also impact the size and composition of the Eurosystem’s balance sheet in the future.
The need to rapidly reduce carbon dioxide emissions will adversely impact the operations of many companies, and may make old operations unprofitable. Loan portfolio risks can be assessed by combining company-specific information on technologies and emissions with corporate loan portfolio data.
For households with outstanding loans, interest payments are now taking a larger slice of their income. Savings and a strong labour market have helped households cope with the rise in the cost of living.
The increase in household and investor indebtedness from housing company loans has been a concern to the authorities. Housing company loans still account for a considerable share of the financing for new homes, but new legislation will start to curb the level of debt incurred via housing company loans.
Capital buffer requirements imposed on banks are among the most important instruments available in the macroprudential policy toolkit. They protect the ability of banks to withstand losses and provide credit during severe economic and financial crises.
In Finland, it should be possible to impose a countercyclical capital buffer requirement on banks before the credit cycle overheats. This would allow the authorities, as necessary, to lower the capital requirements for banks during a crisis situation on a more flexible basis than at present.
In 2022, a backup system was put in place for safeguarding daily payments during exceptional situations affecting society. The authorities and the financial sector should continue to enhance their preparedness for coping with severe disruptions in society that threaten the availability of normal banking and financial services.
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