In Finland, variable rate mortgages are common, which to some extent is amplifying the impacts of monetary policy on economic growth and inflation. A key factor is the extent to which households have a financial margin to use as a buffer against increases in their loan servicing costs.
Bringing Finland’s public finances onto a different path has proven more challenging than expected. The Government is planning major cuts in public expenditure, but the level of public spending in the immediate years ahead will nevertheless still exceed public revenues.
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.
A weak economic environment calls for a sustainable and long-term economic policy. Finland has every opportunity to succeed if debt sustainability is taken as a common goal and a firm commitment is made to this across parliamentary terms.
The economy is performing weakly, and there are a number of reasons for this. Higher prices and interest rates continue to be a strain on household consumption. Investment is low. Residential construction, for example, is on hold. Consolidating Finland’s public finances is more challenging than expected.
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