Articles on the economy
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.
Finland’s general government revenue and expenditure are chronically out of balance. Population ageing is adding to health and social services spending and at the same time public debt service payments are growing. A fiscal correction will require significant spending cuts and tax increases in future parliamentary terms. The Bank of Finland estimates that the sustainability gap is about 4% of GDP.
The sustainability gap estimate tells us by how much the general government fiscal balance needs to be permanently adjusted so that public debt does not grow out of control in the future. The updated estimate is 3.5% relative to GDP.
Finland’s debt-to-GDP ratio doubled after the financial crisis. This trajectory is now on the decline, but population aging will raise public expenditure, and threatens to tilt the debt ratio upwards.