EUROPEAN COMMISSION
Brussels, 4.6.2025
SWD(2025) 226 final
COMMISSION STAFF WORKING DOCUMENT
2025 Country Report - Finland
Accompanying the document
Recommendation for a COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Finland
{COM(2025) 226 final}
On the road to a muted recovery
Falling interest rates are paving the way to economic recovery. The Finnish economy remained in a shallow recession in 2024, even though the economy expanded in quarterly terms throughout the year. Market interest rates began to fall in 2024, helping improve overall economic sentiment and translating into expanding output, a positive trend likely to have continued in early 2025 ( 1 ). Declining debt servicing costs are set to reduce pressure on household budgets, though high unemployment is expected to keep weighing on private consumption. In the last quarter of 2024, gross fixed capital formation stabilised, with non-residential investment increasing since the second quarter of 2024. Exports of services, especially to the US, increased significantly in 2024. Provided the positive economic momentum withstands the impact of exacerbating trade tensions, the Finnish economy is expected to grow by close to 1.0% in 2025 and slightly more in 2026.
The labour market is set to respond to revived economic activity with a lag. In 2024, the unemployment rate increased to 8.4% and neared 9% at the beginning of 2025. This situation is in stark contrast to falling joblessness observed in most other euro area countries and can be attributed mostly to the persistent impact of the overall weak economic environment. The deterioration of the labour market situation is also reflected in a declining number of vacancies and the decline in the employment rate that dropped to 77% in 2024 ( 2 ). However, the economic recovery is projected to slowly bring some relief to the labour market, with the unemployment rate expected to fall to about 8.3% by the end of 2026.
Ageing and persistent demand shocks limit productivity growth
The share of the population aged 65 years and over rose at one of the fastest rates in the EU. The old-age dependency ratio increased from 28.9% in 2013 to 37.8% in 2024, among the highest in the EU. The total fertility rate has been in decline almost without interruption since 2010. Consequently, the working-age population (ages 15-64) has been shrinking ( 3 ). However, net migration increased from 23 000 persons in 2021 to 48 500 persons in 2024, largely due to an influx of Ukrainian refugees. Recent estimates suggest that a net inflow of 27 000 persons annually would be needed for an average real GDP growth of 1.8% by the 2030s ( 4 ).
Finland’s economic growth has been relatively modest since the 2010s. This reflects the impact of persistent demand shocks related to the great financial crisis of 2008/2009 and the collapse of the electronics sector, notably the Nokia crisis ( 5 ). Over time, the economy's centre of activity has shifted towards services, where productivity is generally lower. The remaining traditional manufacturing sectors primarily produce intermediate products, for which demand is either stagnant or declining. Additionally, the complexity of these goods is medium to low ( 6 ), suggesting limited economic potential. On the positive side, the ICT sector has provided a significant boost to the growth of service exports since 2019.
Cost-competitiveness depends on wage restraint amid low productivity growth. The competitiveness pact agreed in 2016 and effective until 2019 helped contain wage growth and added unpaid work hours. This resulted in negligible unit labour cost growth and an improvement in Finland’s cost-competitiveness during that period. The current wage bargaining system consists of two tiers - sectoral agreements and company-level bargaining - and continues to help moderate wage growth.
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Graph 1.1: Unit labour costs |
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Source: European Commission |
However, a spike in inflation due to the energy crisis led to significantly faster wage growth in 2022 and 2023 exceeding labour productivity. From 2021 to 2023, annual wage growth was three to four times higher than the average growth recorded between 2016 and 2020, reflected in rising unit labour costs (Graph 1.1). In 2024, unit labour cost stagnated.
Sustaining competitiveness lies with fostering productivity and innovation. Labour productivity has been declining for some time, which can also be attributed to the less efficient allocation of the labour force (i.e. a shift to the service sector). Total hours worked have been stagnating, although employment grew before 2023. This reflects the fact that more people tend to take up part-time jobs. Furthermore, in some specialisations like engineering, the number of higher education graduates has been too low to provide a sufficient supply of skilled labour (see Annex 12). The lack of skilled labour is cited by businesses as a significant barrier to investment (see also Box 1 and Section 4). Finland also faces difficulties in turning its innovation potential into viable business ideas, even though there are efforts to boost R&D spending (see Section 2).
Geopolitical headwinds add to long-standing domestic challenges
The collapse of trade with Russia has had a tangible effect on the Finnish economy. Geographical location and intensive trade ties exposed the Finnish economy to the repercussions of Russia’s war of aggression against Ukraine. Some Finnish exporters that previously traded with Russia have successfully found new markets and suppliers of raw materials ( 7 ). However, service exports have been negatively affected by the loss of tourist inflows from the East. Moreover, because of Russia´s war of aggression against Ukraine, the economic development for some sectors in the southeastern border regions has been weaker than in the rest of the country (see also Annex 17).
The Finnish economy’s exposure to US import tariffs has been compounded by further rise in trade policy uncertainty. Amid a trend of falling export market shares ( 8 ), the US has become the most important trading partner for Finland outside the EU with a share of 23% of extra-EU goods exports in 2024 (9.7% of total exports of goods). Tariffs would, therefore, dampen Finland’s goods exports, according to the Bank of Finland. The impact of US import tariffs would be even more detrimental if unilateral tariffs turn into mutually escalating trade restrictions. The combined effect of retaliatory tariffs, a general expansion of barriers to international trade and a general increase in trade policy uncertainty would then significantly shrink exports and corporate investment and, therefore, growth ( 9 ).
Worsening fiscal situation requires substantial fiscal consolidation
The general government deficit rose to 4.4% in 2024. A weak economic situation reduced revenues, while spending on social benefits increased. The reductions in social security contribution rates, higher public wages and debt servicing costs put further pressure on expenditure. Finland has also allocated funds to strengthen border security, in addition to previously decided investments in military equipment. The general government deficit is, therefore, unlikely to fall below 3% of GDP before 2027. Consequently, the general debt-to-GDP rate is set to climb above 87% by 2026, compared to 77.1% in 2023.
Net expenditure complies with the Council recommendation. In 2024, net expenditure( 10 ) in Finland grew by 3.1% (see Annex 1). This increase is mainly driven by sustained growth in social benefits payments (due to pension and unemployment payments) and public investment (e.g. in R&D and defence). In 2025, net expenditure is forecast by the Commission to grow by 1.3%, which is below the maximum growth rate recommended by the Council ( 11 ). The cumulative growth rate of net expenditure in 2024 and 2025 taken together is projected at 4.4%, which is below the maximum rate recommended by the Council. Taking into account the information provided by Finland in its Annual Progress Report, the reforms and investments underpinning an extension of the fiscal adjustment to 7 years ( 12 ) that were due by 30 April have been implemented.
The Finnish government adopted two consolidation packages since 2023. The announced total consolidation effort of EUR 9 billion (or approximately 3% of GDP) comprises both expenditure and revenue measures. It includes cuts in unemployment benefits and an increase in the standard VAT rate from 24% to 25.5%, already implemented in September 2024 (see Annex 2). At the same time, out of EUR 9 billion, EUR 2 billion in additional tax revenues are expected from higher employment due to improved work incentives. However, in April 2025, the government announced cuts in personal income tax to be implemented from 2026 and a reduction in corporate income tax from 2027, both of which are set to reduce tax receipts.
More selective tax increases could strengthen revenues in a growth-friendly manner. For example, the excise duty rate (i.e. energy content tax) on motor fuel has not been revised recently, leading to lower effective taxation when fuel prices increase, and especially in the context of increasing income level. Recurrent property taxation also seems to be lower than the aggregate level of the EU. In addition, the taxation of dividends of unlisted companies is lower than those of listed ones. Finally, spending reviews could be integrated into the fiscal framework permanently to enhance spending efficiency.
Reforms of social security and health care are set to alleviate fiscal pressure
The wellbeing services counties are set to improve cost efficiency to rein in deficits. In 2023, the wellbeing services counties’ deficit was 0.7% of GDP compared to the planned 0.2%. Since this new level of local government was set up in 2023, its functioning has generated larger-than-anticipated deficits, partly due to expensive outsourcing of healthcare services. The wellbeing services counties are expected to set up plans to improve their use of premises and service networks, expand their use of centralised procurements, and improve competition in public procurement ( 13 ). Though the current legal basis requires the wellbeing services counties to cover their deficits by 2026, some entities may not be able to achieve this target and might jeopardise attempts to put the general government deficit on a steeper declining path.
Finland is planning to overhaul its social security system. In 2025, the government is set to prepare legislation to streamline social protection by moving towards a general social security benefit. This reform will be carried out in stages, and it is planned to cover their living and housing costs, as well as other expenses. The general social security benefit is set to decline gradually as the recipient’s labour income increases. Simultaneously, the government aims to reform the provision of basic social assistance by making the conditions more transparent and encouraging participation in the labour market. These efforts are expected to increase labour supply and support the sustainability of public finances.
The reform to the earnings-related pension system is set to enhance sustainability. The government tasked social partners to put forward a proposal to strengthen the sustainability and adequacy of the pension system. The proposal that will underpin the legislative process aims to increase investment returns of pension assets by changing the investment regulations that apply to private earnings-related pension providers; keeping the contribution rate of 24.4% for private sector earnings-related pensions (statutory employment pension insurance, also known as 'TyEL') unchanged until 2030 and including an inflation stabiliser that curbs pension indexation if consumer prices rise faster than wages over a two-year period. Conversely, the proposed reform does not intend to change the retirement age or pension accrual rates. The proposed reform is set to increase investment risk in a sustainable manner.
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Box 1: |
Barriers to private and public investment Finland’s total investment as a share of GDP has declined slightly since 2018 (24.6% in 2018 vs 23.2% in 2023) but remained above the EU and euro area aggregates. The business investment ratio to GDP stood at 13.3% in 2023, approximately 1 percentage point lower than the peak in 2008 and just above the EU and euro area aggregates. Despite a tense fiscal situation, Finland’s public investment remains above the EU and euro area levels. Public investment peaked in 2020, when the ratio reached 4.9% of GDP as part of the government’s efforts to support the economic situation during the COVID-19 pandemic. In 2023 it stabilised at 4.1%. Finnish businesses highlighted the following main barriers to private investments: Uncertainty about the future. This have been indicated as a barrier to investment by 81% of Finnish business which participated in the European Investment Bank's 2024 investment survey. This is higher than the EU average of 79%. The weak economic situation in recent years and overall geopolitical tensions make Finnish business rethink their investment plans and focus more on replacement investments rather than on expanding their capacities. Lack of demand for products or services. Domestic demand declined in 2022 and 2024, while economies of major trade partners have been struggling recently. This discourages companies from investing to expand their operational capacities. Labour and skills shortages. The needs and expectations of the employers and the skills of the workers do not consistently align, which contributes to high structural unemployment. The implementation of Finland’s RRP is well underway. At present, Finland has fulfilled 33% of the milestones and targets in its RRP. It remains important to accelerate the implementation of cohesion policy programmes. The mid-term review offers opportunities to speed up progress and better address EU strategic priorities related to competitiveness, defence, housing, water resilience and the energy transition. Finland has not yet taken advantage of the opportunities provided by the Strategic Technologies for Europe Platform under Cohesion Policy to reallocate resources towards this priority. However, it can still support the development or manufacturing of critical technologies in the areas of digital and deep tech, clean and resource efficient technologies, and biotechnologies. |
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Box 2: |
UN Sustainable Development Goals (SDGs) While Finland performs above the EU average on SDGs related to productivity (SDG 4, 8 and 9), is moving away from targets in quality education (SDG 4) and decent work and economic growth (SDG 8). These trends are underlined by an increase in the unemployment rate and lower GDP per capita, as well as worsening education outcomes. Finland is overall improving in SDGs related to environmental sustainability and performing well in SDGs related to fairness, with high scores and progress in clean water and sanitation (SDG 6) and climate action (SDG 13). Out of the 17 indicators, only 5 SDGs remain below the EU average. These relate to good health and wellbeing (SDG 3), environmental sustainability (SDGs 7, 12 and 14) and macroeconomic stability (SDG 17). |
Finland has a sizeable potential for innovation-driven growth
Finland ranks among the EU’s leading innovation performers. According to the European innovation scoreboard, Finland’s innovation performance was 128% of the EU average in 2024 ( 14 ). Notably, Finland is the EU country with the highest proportion of companies introducing new products or services onto the national or international market. This innovation capacity is supported by a high degree of digitalisation, with Finland being above the EU average in most of the Digital Decade key performance indicators ( 15 ), notably in digital skills of individuals and SMEs. Moreover, Finland has a robust research base in science, electrical engineering and forestry (see Annex 3).
Finland is well placed to seize the opportunities emerging from artificial intelligence ( 16 ). Finland’s reliable infrastructure and high-quality research makes it a natural destination for national and EU-wide research hubs. The second European Laboratory For Learning And Intelligent Systems (ELLIS Institute) was established in Finland in 2025 to promote top AI research, large-scale R&D collaboration, and ethical AI development across Finnish universities. Finland was selected to host an AI Factory and will use the European high-performance computing joint undertaking supercomputer LUMI in Kajaani to launch its operations. LUMI’s successor, a new LUMI+ AI-optimised supercomputer, will provide computing capacity required for training and fine-tuning AI models.
The share of private investment in the AI sector is still relatively low. This is due to the dominant role of public funding in the early project stages and to unfavourable market conditions. AI-startups have the same access to public funding as other startups and have been successfully in raising early-stage funding. However, they have been less successful in larger growth-funding rounds, which has inhibited some innovative businesses from scaling up. While it is estimated that some 20% of the working population in Finland have professions whose content can be substituted by AI up to 50%, generative AI has thus far had a positive impact on employment in Finland, increasing labour demand and salaries in AI-affected sectors ( 17 ).
Finland has a relatively high level of R&D spending, and the ambition to increase it further. In 2023, Finland’s R&D spending amounted to 3.1% of GDP, compared to 2.2% of the EU average. The Finnish government has set the target of increasing R&D spending to 4% of GDP by 2030, with central government R&D funding accounting for 1.2% of GDP. To support this target, a series of measures have been introduced to incentivise private R&D, such as tax incentives (see Annex 3) and funding promoting cooperation between the private and public sector ( 18 ). However, public support for R&D could be more targeted to companies with the highest innovative potential, possibly promoting cooperation between businesses and higher education. Further measures to de-risk private investment could also be introduced.
Finland is aiming to significantly expand its cybersecurity capabilities. In recent years, Finnish businesses have experienced an increasing amount of cyberattacks (see Annex 4). The importance of cybersecurity is recognised by Finland’s Digital Compass ( 19 ). Measures already taken include strengthening higher education in cybersecurity and setting up a dedicated agency to enhance SMEs' cybersecurity capabilities ( 20 ). In 2024, the government published Finland’s cybersecurity strategy, focused on (i) developing competencies, (ii) increasing preparedness, (iii) boosting cooperation between public, private and international actors, and (iv) putting in place appropriate countermeasures ( 21 ).
The business environment is overall conducive to innovation
Finland’s competitiveness benefits from a stable institutional framework and advanced digitalisation. Finland has stable and transparent public institutions and reliable infrastructure. Moreover, Finland is one of the world leaders in public electronic services: the availability of digital public services to citizens scores well above the EU average, while the availability to businesses has reached the Digital Decade 2030 target (Annex 6).
Businesses benefit from easy access to both equity and debt financing. Finland is characterised by a stable banking system, high financial literacy, and an efficient capital market. Internal financing, listed equities, and bank loans are the main sources of funding for the non-financial sector, with only 6% of firms reporting obstacles when seeking bank loans. The country features a predominant equity culture, with capital market instruments accounting for 68% of corporate financing.
Access to venture and growth capital is more limited. This is particularly an issue in the later stages of financing, due to conservative participation by institutional investors like pension funds. Therefore, small productive firms may struggle to find the funding to scale up beyond the startup phase. The taxation system could be adapted to make it more supportive of venture capital financing and investing ( 22 ).
Regulation does not hinder investment, but room for improvement remains. Some 46% of Finnish companies consider business regulations and some 49% consider labour regulations an obstacle to investment, lower rates than their EU peers. However, the licensing system could be further improved and the regulatory burden could be further reduced ( 23 ) (Annex 4). For example, regulators are not currently required to identify any substantial compliance costs or administrative burden that new regulations would entail (Annex 6).
Innovation does not translate into higher productivity
Despite the strong innovation activity, labour productivity stagnated over the last decade. Labour productivity per hours worked declined by 0.4% in 2024, and by 0.6% in annualised term in 2020-2024. Similarly, total factor productivity (i.e. the efficiency with which inputs, such as labour and capital, are used together during the production process) in Finland has generally hardly grown or even stagnated in recent years. While the level of labour productivity remains above the EU aggregate, the gap has narrowed significantly (see Graph 2.1). Starting at nearly 120% of the EU in terms of GDP per hours worked in the early 2000s, it decreased to 105% by 2023.
Structural factors explain the long-term trends in labour productivity. The collapse of the electronics sector had long-lasting consequences on the Finnish economy. For most of the 2000s, the electronic sector accounted on average for more than 6% of gross value added, but by 2012 it reached the low of 1.5% of gross value added and hovered at around 2% of GDP afterward. With no other sector filling the void left by electronics, total gross value added recovered its pre-2008 levels only around 2018 and has only grown modestly since. The decline in gross value added due to the collapse of the electronic sector consequently reduced labour productivity, given that employment did not decline as much. The collapse also meant that the less-productive service sector increased its share in total employment, slowing down productivity growth. A low level of capital per worker has also reduced labour productivity growth in the manufacturing sector. Furthermore, evidence shows that the most productive companies in Finland account for a relatively small share of employment, and therefore cannot significantly boost the aggregate level of productivity ( 24 ). Indeed, In Finland, the dynamic of productivity has been driven by laggard firms ( 25 ), with sluggish productivity performance ( 26 ).
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Graph 2.1: Labour Productivity |
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Source: European Commission |
Finnish firms do not reap the full benefits of the single market
High-growth enterprises ( 27 ) represent a relatively high share of employment. In 2022, Finnish high-growth enterprises accounted for 15.8% of employees in active firms with more than 10 employees, more than the EU average (1.2%), comparable to the figure in Denmark (15.7%) and lower than that in Sweden (23.6%). Moreover, young high-growth enterprises (‘gazelles’) accounted for 2% of employees in active firms with more than 10 employees, a share higher than in the EU, Denmark or Sweden. While these gazelles have higher productivity than larger incumbent firms, a recent analysis using a definition of gazelles based on turnover growth showed that (i) the birth rate of gazelles is lower in Finland than in the EU overall, and (ii) Finnish gazelles are under-leveraged compared to the EU average ( 28 ).
Finland’s SMEs have a relatively low level of goods trade integration within the EU single market. Trade statistics show that the size of Finnish firms involved in intra-EU goods exports is comparable to the EU average. However, the value of intra-EU goods exports shows that SMEs (i.e. firms with fewer than 250 employees) accounted for a smaller share of intra-EU goods trade (36%) compared to the EU average (41%), Denmark (52%) and Sweden (42%) in 2022 ( 29 ). In contrast, SMEs accounted for 57% of intra-EU goods imports, more than the EU average (51%) in the same year. These figures suggest that there may be scope for Finnish SMEs to further benefit from the EU single market by expanding their goods exports to other EU countries (see Annex 4). Reducing regulatory barriers between Member States could help Finnish exporters integrate into the single market, as they flag more often than their EU peers that they need to comply with differing standards and consumer protection rules across EU countries (70% vs EU 60%, see Annex 4).
Finnish SMEs show a relatively high level of services trade integration within the EU single market. In Finland, SMEs accounted for 37% of intra-EU services exports in 2022, more than the EU average (28%) and Denmark (26%), and similar to Sweden (40%) ( 30 ), while they accounted for 25% of intra-EU services imports, similar to the EU average.
Shortages of skilled labour risk slowing down Finland’s long-term growth
The availability of specific skills is vital to reach Finland’s innovation goals. Finnish companies cite the lack of a workforce with specific skills as one of their main obstacles to investment ( 31 ). Boosting competitiveness through increased R&D investment means a growing need for highly educated and specialised knowledge workers, as investments cannot be effectively exploited without an adequate pool of skilled labour. Commercialising innovations also requires entrepreneurial and business skills and effective cooperation between academia and businesses. As Finland has ambitious green transition goals, skills shortages are expected in certain clean transition fields, such as energy efficiency, energy supply, construction and transport ( 32 ). The skills shortages not only slow down competitiveness and growth in the sector but may also limit progress towards Finland’s climate target of carbon neutrality by 2035. In addition, lack of adequate labour supply with specific skills can hinder R&D and growth driven by digital technologies. A digitalisation and technological transformation boost depends on the increasing supply of specialised profiles (e.g. ICT), including in fast-developing areas where Finland has experience, such as cybersecurity ( 33 ) (Annex 4).
Modernising the educational system is key to addressing skills shortages. Finland has been a leader in education but has slipped in PISA rankings measuring basic education outcomes (Annex 12). The challenges of the education system in Finland include the overall strain on public finances, teacher shortages, and the growing share of underachieving students. Finland plans to significantly increase its higher education levels, as the higher education attainment has fallen below the EU average (Section 4). More study places should be made available for first-time university students, and more PhD students should be trained, possibly in cooperation with companies and SMEs ( 34 ). As new fast-growing economic sectors develop, flexible allocation of study places reflecting demand is needed. In addition, enhancing cooperation, building knowledge clusters, and attracting foreign talent and promoting work-based immigration ( 35 ) could help develop people's skills.
Finland’s ambition towards carbon neutrality faces increasing challenges
Finland’s target for carbon-neutrality by 2035 is the most ambitious climate target in the EU. The revised Climate Act includes this carbon neutrality target as well as the medium and long-term targets for emissions reductions by 2030, 2040 and 2050. Efforts are ongoing in each of the main sectors contributing to overall emissions, including energy, industry, transport and buildings. These efforts all seek to reduce the country’s emissions in order to meet its climate targets. An uncertain economic outlook (see Section 1), supply-chain bottlenecks, increased raw materials prices and higher market interest rates have contributed to delays in the delivery of investment projects in the energy and industry sectors, posing challenges to the progress towards carbon neutrality. Finland remains one of the most energy-intensive economies in the EU, partly due to its cold climate and the long distances between population centres.
Finland’s climate is warming faster than the global average ( 36 ). The country has a long-standing comprehensive climate adaptation strategy, but climate change is accelerating. In 2024, Finland faced record high temperatures. The annual average temperature was 4.0 degrees Celsius, 1.1 degrees above the 1991-2020 average. Northern Lapland saw the most pronounced warming, with temperatures rising 1.7 degrees above the average. This creates country-specific risks, including degradation of soil quality, increased emissions from peatlands, threats to biodiversity, increasing wildfire risks as well as effects on natural ecosystems, tourism and agriculture.
The reduction of the carbon sink puts climate progress at risk
Finland’s forests are a key element of its climate strategy. Increased logging rates have turned the carbon sink into a net source of emissions since 2021. The significant decrease of the carbon sink negatively affects the country’s ability to meet its carbon neutrality goals. In 2023, forests contributed 1.12 Mtonnes of CO2 equivalent emissions ( 37 ). Soils have also become a source of emissions since 2021. Excluding the land use, land-use change and forestry sector, Finland reduced its carbon emissions by 43% between 1990 and 2023. While this is above the EU average, net emissions are exceeding its 2035 target by between 16 and 33 Mtonnes of CO2-equivalent, depending on the scenario. The sector’s net emissions therefore jeopardise much of the progress made since 1990. In 2022, imports of timber from Russia were reduced to zero. Moreover, the energy-use of wood is not taxed, which may further incentivise unsustainable harvesting. Forest growth rates have stagnated since 2013 after decades of increasing growth rates due to reasons including droughts and age structure of the forests.
Finland’s agriculture is still a major source of greenhouse gas emissions, in particular from peatlands. While only 11% of agricultural land is on peat soil, farming on peat soil accounts for over half of agricultural emissions. Finland is taking steps to phase out the use of peat for energy purposes. Reducing the use of peat has an impact on local economies and employment because peat extraction is geographically concentrated in small communities in economically disadvantaged areas. Targeted investment, such as through the Just Transition Fund, contributes to ensuring a smooth transition.
Progress is uneven among the main emitting sectors
The energy sector is decarbonising at a steady pace. Some 95% of all electricity in Finland is generated either by renewable energy sources or nuclear energy. Finland has legislated a ban on the use of coal for energy as of May 2029 and no coal-fired power plants are in operation any longer. The share of district heat produced from renewable energy was 48% in 2024. An additional 16% is produced from heat recovery and 4% from electric boilers. Finland's energy mix has the EU's second highest share of renewables at 42% of total energy consumption in 2023, followed by nuclear (24%), oil (24%), solid fossil fuels (5%) and natural gas (4%). In December 2024, Finland approved an Act on Offshore Wind Power in the Exclusive Economic Zone, which is expected to lead to increased investment in offshore wind power generation in the medium term. The ambitious overhaul of the environmental permitting system will enter into force on 1 January 2026 and is expected to further facilitate and accelerate investment in renewables.
As more renewable energy is added to the energy mix, the electricity grid will need increased capacity and modernisation. As a relatively large share of electricity is generated in the west and north of Finland while consumption is concentrated in the south, there is a need to increase transmission capacity. Moreover, advancing electrification is expected to significantly increase electricity consumption in the future. Finland is nearly self-sufficient as a producer and consumer of electricity. Its energy security is strong, with domestic production covering 98% of electricity demand in 2023. Moreover, Finland's interconnections with Estonia, Sweden and Norway make it well-connected to neighbouring countries. Its level of electricity interconnectivity was 15.5% in 2024, already exceeding the 2030 target of at least 15%. Finland continues to closely monitor the security of critical infrastructure, especially by enhancing surveillance and repair capacity, in light of recent incidents related to critical infrastructure in the Baltic Sea.
A diligent implementation of the national roadmap for fossil-free transport is key. Transport accounts for approximately 20% of total emissions in Finland. Timely implementation of the measures linked to the roadmap is necessary to achieve the country’s objective of reducing emissions from transport by 50% by 2030 compared to 2005. Finland is preparing its social climate plan to ensure that the transition is fair to vulnerable groups, including by providing supporting measures for households experiencing energy or transport poverty. In 2024, nearly 50% of new passenger cars registered were battery-electric or plug-in hybrid electric vehicles ( 38 ). However, these vehicles still represent only 10.3% of the car fleet. Long distances between population centres and sparsely populated areas in some regions may prove limiting factors to the electrification of passenger transport. Other areas of the transport sector, including long-haul transport and improved public transport connections within and between urban areas, could contribute to speeding up the decarbonisation of transport.
Investing in net-zero technologies is important for Finland’s business model
Investing in the green economy, including in skills, is crucial for competitiveness. Significant investment volumes are allocated to frontier technologies in green tech, including wind power and green research, development and innovation. An improved circular materials use rate could reduce the dependence on imports of key materials and other inputs into the industrial process. Decarbonisation and electrification are potential sources for efficiency in traditional industries. Technologies that have reduced carbon intensity in these industries create potential for scaling up similar processes in other types of production. Finland will need to address shortages of skilled workers as well if it wants these sectors to grow. Sector-specific shortages of skilled labour exist notably in construction, energy renovations and battery production (see Section 4).
There is progress on decarbonising industry, but efforts could be stepped up. Electricity prices for non-household consumers in Finland are the lowest in the EU ( 39 )( 40 ). The abundant supply of affordable renewable energy thus presents a unique opportunity for the electrification of industrial processes. While some major investments are at risk of postponement or cancellation ( 41 ), including those along the hydrogen value chain, several major investments are still in the pipeline including those financed by the Recovery and Resilience Facility. Finland is implementing two State aid programmes based on the EU’s temporary crisis and transition framework, both focusing on decarbonising industry. The new emissions trading system for buildings, road transport and additional sectors is estimated to cover about 50% of the total emissions from the effort-sharing sector. Finland is unilaterally expanding the scope of this system to cover emissions from fuel combustion from agriculture and forestry as well as non-commercial navigation.
Finland is taking steps to replace the Waste Act by a new Circular Economy Act. The Waste Act was originally adopted in 2011 and has been amended several times since then. The new Circular Economy Act aims to consolidate and clarify the rules applicable to the waste sector. Moreover, it will take a life-cycle approach to products rather than focusing exclusively on waste. More action to promote the circular economy is necessary to address Finland's low municipal waste recycling and high waste incineration rates. Both the circular material use rate and resource productivity are among the lowest in the EU. The low rate of re-use of materials could impact the competitiveness of industry as the availability and affordability of critical raw materials becomes more and more uncertain. Beyond leveraging domestic resources through local extraction and processing of critical raw materials, increased action on re-use of key materials could contribute to the autonomy and productivity of Finland’s industry.
Improving educational attainment and retaining foreign talent are key to address skills shortages
The worsening labour market situation is particularly affecting vulnerable groups. The employment rate fell to 77.0% in 2024, jeopardising Finland’s national target of 80% by 2030. The downturn is hitting hardest people without formal qualifications beyond primary education. Jobs are also scarce in the sparsely populated areas, including the eastern border regions where trade and tourism with Russia has collapsed due to Russia’s war of aggression against Ukraine.
Labour and skills shortages persist and are set to exacerbate with the recovery. Sectors particularly affected by skill shortages are IT, construction, energy renovation, battery production, education and healthcare. Finland has made some progress in responding to the growing demand for ICT professionals and green skills through educational reforms, training programmes and the promotion of skilled immigration (see Annex 12). Teachers are in short supply, especially in early childhood education and care. The number of children participating in early childhood education has increased, while the number of graduates in the relevant fields dropped.
Education outcomes have declined over the past decade. While Finland still performs better than the EU average, the share of 15-year-old students underachieving in basic skills (see Graph 4.1) has been increasing more than the EU average ( 42 ). Underachievement is more pronounced among low-income groups and students with a migrant background. Moreover, the gap between the highest- and lowest-scoring students has widened. Overall, this negative trend jeopardises Finland’s long-term potential for growth and innovation.
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Graph 4.1: Underachievement rates by field, PISA 2012, 2018, 2022 (%) |
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Source: OECD 2012, 2018, and 2022 |
The share of tertiary graduates has fallen below the EU average, 39.1% vs. 44.2% in 2024, and Finland is lagging behind the national goal of a 50% tertiary education attainment rate by 2030. University admissions for first-time students are frequently delayed, as senior students and graduates tend to enrol for additional degrees. A revised funding model for higher education, in force from the beginning of 2025, encourages prioritising admission of first-time students and provides incentives to complete studies on time. Better coordination between education providers, public administration and industry would also help ensure that skills and qualifications meet current and future labour market demand.
While Finland compares well in adult learning, progress towards the national target of 60% in 2030 remains limited. Adult learning significantly contributes to mitigating skills shortages (see Annex 12), highlighting the need for reskilling and upskilling in response to the changing needs of the job market. The recovery and resilience plan supports several projects coordinated by the Service Centre for Continuous Learning and Employment. These include a 2025-2026 pilot project on studying alongside work in sectors suffering from labour shortages. However, the adult education allowance was abolished in 2024, which is expected to dampen the demand for adult learning.
An ageing society depends on foreign talent to meet demand for skilled labour. The talent boost programme supported by the Recovery and Resilience Facility encourages people to move to Finland to work or study by streamlining of work and study permit procedures, attracting foreign talent and supporting their integration. While net migration in 2024 remained high at 48 500 persons, there was a decrease in requests for work permits. Study-based immigration is rising, but Finland could further promote the employment of foreign graduates by reducing bureaucratic hurdles and language barriers.
Reform of social safety net to strike balance between incentives to work and social protection
The share of population at risk of poverty or social exclusion remains low but is increasing. Reaching the 2030 target of reducing this number by 100 000 compared to 2019 is challenging as it increased by 117 000 in 2024 (see Annex 11). Homelessness rose for the first time in a decade, to 3 806 persons in 2024. This was driven mainly by a lack of affordable and small apartments, by a high cost of living and cuts in social benefits ( 43 ), which reduced the rental ceilings for housing supported through benefits.
Reforms to the social security system aim to reduce complexity and improve incentives to work. In 2024, the indexation for several social benefits was frozen until 2027 and the monthly earned-income exemption (EUR 300) was removed from unemployment benefits. The child supplement to unemployment benefits was also discontinued and the earnings-related unemployment benefit was revised to taper over time. In parallel, a comprehensive overhaul of the social security system is planned with the introduction of a general social security benefit to simplify access to social protection. In addition, last-resort social assistance is set to be reformed by clarifying the obligations for social assistance recipients, which could involve requirements such as active search for a full-time job or participation in rehabilitative services. The new system would still need to allow flexibility for those with partial work ability to better combine different benefits and services, thus supporting their integration into working life. Employment and distributional impacts will need to be monitored, especially for low-income and low-work-intensity households.
A mix of incentives and support aim to help the jobless and inactive to find work. Services such as the Ohjaamo one-stop guidance centres (part-funded by the Recovery and Resilience Facility) for those under 30 years old, the introduction of the Nordic model of employment services with new job search obligations, and personal support from employment services aim to engage the inactive working-age population. In January 2025, public employment services were transferred to the municipalities to provide better services to jobseekers (including the long-term unemployed, persons with partial work ability or low education levels, migrant women, and older persons). The effectiveness of these initiatives relies on good coordination among public services, close participation of the business community and targeted programmes for marginalised groups.
The social and healthcare services reform proves challenging
Needs for healthcare services are increasingly not met. The share of people self-reporting unmet needs for medical care has increased from 7.9% in 2023 to 8.5% in 2024, compared to the EU average of 2.5%. The main reason is long waiting times (see Annex 14). Demand for healthcare services is set to increase further, driven by the rising share of older people.
The social and healthcare services reform faces implementation challenges. The Finnish social and healthcare system was fundamentally restructured in 2023, when 21 wellbeing services counties were established to provide social, healthcare and rescue services at regional level ( 44 ). This restructuring, supported by the Recovery and Resilience Facility, aimed to ensure more equal access to services and to enhance efficiency. Two years on, the wellbeing services counties are in different stages of reform, with regional disparities in access to social, healthcare and long-term care services ( 45 ). Inflation, remaining inefficiencies, rising demand and labour shortages requiring recourse to private-sector providers led to sizeable budget overruns of the wellbeing services counties.
Improvements in efficiency are taking more time to emerge. The reform of social and healthcare services has tightened the monitoring and financial steering of the wellbeing services counties. It has also started to improve the data available on clients, services and unit costs. Together with the rapid increase in the availability of digital services and tools, this raises expectations for productivity and efficiency gains, which will be fundamental for ensuring the sustainability of the social and healthcare services in the long run. The increase and efficient use of data from the wellbeing services counties could help steer the reform on a sustainable path, while improving access to care in the long run.
The reduction of statutory requirements dampens labour demand in the social and healthcare sector in the short term. Clearing the high deficits accumulated by the wellbeing services counties by 2026 requires reducing the service network, employing more digital solutions, increasing customer fees, and tightening care criteria, among other things. Most notably, the legal requirements for the maximum waiting time allowed for access to non-urgent care was relaxed from 14 days to three months for people older than 23. These changes effectively eased labour demand in the social and healthcare sector but may challenge the goal of shorter waiting times.
Population ageing puts pressure on long-term care
Population ageing increases the demand and costs for long-term care. Between 2014 and 2024, Finland’s population share of those aged 65 and over increased by 4.0 percentage points, and the old-age dependency ratio increased from 33.2% to 41.6%, remaining well above the EU average. The costs of ageing-related healthcare, social protection and in particular the projected higher spending on long-term care will have implications for fiscal sustainability (see Section 1 and Annex 11).
Rising demand and costs require changes to the structure of old-age care. In January 2025, the staff-to-patient ratio of 24-hour long-term care services (those that are suitable for care recipients with the highest levels of need) was reduced from 0.65 to 0.6. Similarly, the wellbeing services counties are aiming to reduce the 24-hour care provision by substituting it with communal living, suitable for those in need of care with lower disability needs. However, resetting the services for older people will need to carefully consider the types of care needed, to effectively address the different levels of disability.
To boost competitiveness, sustainability and social fairness, Finland would benefit from:
implementing the RRP, including the REPowerEU chapter; swiftly implementing cohesion policy, taking advantage of the opportunities under the mid-term review and making optimal use of EU instruments, including InvestEU and STEP, to improve competitiveness;
improving the efficiency of public spending by factoring in the results of the spending reviews, thus gaining fiscal space for public investment;
widening the sources of financing for start-ups and firms to scale up, including by making the taxation system more supportive of venture capital financing;
supporting commercialisation of innovation, through applied research and joint industry-academic projects and by strengthening researchers’ entrepreneurial skills;
crowding in private R&D investments and backing up their critical and risky elements through measures such as tax incentives and promoting cooperation between the private and public sector to develop innovations with the highest knowledge spillover;
reducing emissions from the land use, land-use change and forestry sector to strengthen the carbon sink by taking action to increase forest growth and limit soil emissions;
making further progress to decarbonise industry and transport, including by promoting investment in electrification and decarbonisation as well as in green technologies to meet the 2035 target for carbon neutrality;
speeding up the circular economy transition by ensuring sufficient ambition for the Circular Economy Act and taking action to reduce waste and promote recycling and reuse;
ensuring that the reform of healthcare and social services enhances cost efficiency, while guaranteeing access and quality, including in long-term care, by improving collection and use of data and more efficient budgetary and administrative management of the wellbeing service counties;
ensuring that the ongoing reform of social protection reduces complexity and improves incentives to work with particular attention to vulnerable groups and interactions with public employment services including active labour market policies;
tackling structural unemployment, supporting the labour market transformation and addressing skills shortages, notably in R&D, the green transition, ICT, and the health and education sectors, by increasing higher education participation and attainment, encouraging reskilling and upskilling, and better attracting and retaining talent;
addressing persistent negative trends in basic education, notably the increase in the underachievement rate, taking into account the performance of students from less advantaged backgrounds.
Fiscal 23
A1.Fiscal surveillance and debt sustainability23
A2.Taxation32
Productivity 35
A3.Innovation to business35
A4.Making business easier39
A5.Capital markets, financial stability and access to finance45
A6.Effective institutional framework52
Sustainability 57
A7.Clean industry and climate mitigation57
A8.Affordable energy transition64
A9.Climate adaptation, preparedness and environment70
Fairness 76
A10.Labour market76
A11.Social policies81
A12.Education and skills86
A13.Social Scoreboard90
A14.Health and health systems91
Horizontal 94
A15.Sustainable development goals94
A16.CSR progress and EU funds implementation96
A17.Competitive regions103
LIST OF Tables
A1.1.General government balance and debt
A1.2.Net expenditure growth
A1.3.Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the recommendation
A1.4.Defence expenditure and the national escape clause
A1.5.Macroeconomic developments and forecasts
A1.6.General government budgetary position
A1.7.Debt developments
A1.8.RRF – Grants
A1.9.Implementation of reforms and investments underpinning an extension
A1.10.Projected change in age-related expenditure in 2024-2040 and 2024-2070
A1.11.Fiscal Governance Database Indicators
A2.1.Taxation indicators
A3.1.Key innovation indicators
A4.1.Making Business Easier: indicators.
A5.1.Financial indicators
A6.1.Finland. Selected indicators on administrative burden reduction and simplification
A6.2.Digital Decade targets monitored through the Digital Economy and Society Index
A7.1.Key clean industry and climate mitigation indicators: Finland
A8.1.Key Energy Indicators
A9.1.Key indicators tracking progress on climate adaptation, resilience and environment
A13.1.Social Scoreboard for Finland
A16.1.Selected EU funds with adopted allocations - summary data (million EUR)
A16.2.Summary table on 2019-2024 CSRs
A17.1.Selection of indicators at regional level in Finland
LIST OF Graphs
A2.1.Tax wedge for single and second earners, % of total labour costs, 2024
A2.2.Tax revenue shares in 2023
A3.1.Gross domestic R&D expenditure as a percentage of GDP
A3.2.Business R&D intensity
A4.1.Making Business Easier: selected indicators.
A5.1.Net savings-investment balance
A5.2.International investment position
A5.3.Capital markets and financial intermediaries
A5.4.Composition of NFC funding as % of GDP
A5.5.Composition of household financial assets per capita and as % of GDP
A6.1.Trust in justice, regional / local authorities and in government
A6.2.Indicators of Regulatory Policy and Governance (iREG)
A6.3.Participation rate of 25-64 year olds in adult learning (%) by occupation
A7.1.GHG emission intensity of manu-facturing and energy-intensive sectors, 2022
A7.2.Manufacturing industry production: total and selected sectors, index (2021 = 100), 2017-2023
A7.3.Greenhouse gas emissions in the effort sharing sectors, 2005 and 2023
A7.4.Municipal waste treatment
A8.1.Retail energy price components for household and non-household consumers, 2024
A8.2.Monthly average day-ahead wholesale electricity prices and European benchmark natural gas prices (Dutch TTF)
A8.3.Finland's installed renewable capacity (left) and electricity generation mix (right)
A9.1.Direct dependency(1) on ecosystem services(2) of the gross value added generated by economic sector in 2022 in the European Union
A9.2.Investment needs and gaps in EUR million, in 2022 constant prices
A10.1.Employment and unemployment, FI and EU
A11.1.Change in equivalised disposable incomes due to General Housing Allowance reform, by household type
A12.1.Underachievement rates by field
A14.1.Life expectancy at birth, years
A14.2.Treatable mortality
A15.1.Progress towards the SDGs in Finland
A16.1.Distribution of RRF funding in Finland by policy field
A16.2.Distribution of cohesion policy funding across policy objectives in Finland
A17.1.Average annual real GDP per head growth versus GDP per head in 2013
A17.2.Labour productivity per hour in Finland
LIST OF Boxes
No table of contents entries found.
LIST OF Maps
A17.1.GDP per head (in purchasing power standard PPS), 2023
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This Annex contains a series of tables relevant for the assessment of the fiscal situation in Finland, including how Finland is responding to Council recommendations issued under the reformed Economic Governance Framework.
The reformed framework, which entered into force on 30 April 2024( 46 ), aims to strengthen debt sustainability and promote sustainable and inclusive growth through growth-enhancing reforms and priority investments. The medium-term fiscal-structural plans (hereinafter, MTPs or plans) constitute the cornerstone of the framework, setting the budgetary commitment of Member States over the medium term. The latter is defined in terms of net expenditure growth, which is the single operational indicator for fiscal surveillance.
Finland submitted its plan on 10 October 2024. The plan covers the period until 2028, and presents an extended fiscal adjustment over seven years, which is underpinned by a set of reforms and investments to which Finland committed with the aim of improving potential growth and fiscal sustainability. On 21 January 2025, the Council adopted the Recommendation endorsing Finland’s plan.( 47 )
The assessment of the implementation of the Council Recommendation endorsing the Finland’s plan is carried out on the basis of outturn data from Eurostat and the Commission Spring 2025 Forecast and taking into account the Annual Progress Report (APR), that Finland submitted on 30 April 2025. Furthermore, given Finland’s request to activate the National Escape Clause( 48 ) following the Commission Communication of 19 March 2025( 49 ), the assessment also considers, as appropriate, the projected increase in defence expenditure based on the Commission Spring 2025 Forecast.
The Annex is organised as follows. First, developments in government deficit and debt are presented based on the figures reported in Table A1.1. Then, the assessment of the implementation of the Council Recommendation endorsing the plan follows, based on the relevant figures presented in Tables A1.2 to A1.8, including data on defence expenditure. Further on, the progress made in the implementation of the set of reforms and investments underpinning the extension of the fiscal adjustment period( 50 ) is assessed, taking into account the information presented in Table A1.9.
The Annex also provides information on the cost of ageing and the national fiscal framework. Fiscal sustainability risks are discussed in the Debt Sustainability Monitor 2024.( 51 )
Developments in government deficit and debt
Finland’s government deficit amounted to 4.4% of GDP in 2024. Based on the Commission Spring 2025 Forecast, it is projected to decrease to 3.7% of GDP in 2025. The government debt-to-GDP ratio amounted to 82.1% at the end of 2024 and, according to the Commission, it is projected to increase to 85.6% end-2025.
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Table A1.1: General government balance and debt |
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Source: Commission Spring 2025 Forecast (COM), Annual Progress Report (APR) |
Developments in net expenditure
The net expenditure( 52 ) growth of Finland in 2025 is forecast by the Commission( 53 ) to be below the recommended maximum. Considering 2024 and 2025 together, the cumulative growth rate of net expenditure is also projected below the recommended maximum cumulative growth rate.
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Table A1.2: Net expenditure growth |
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* The cumulative growth rates are calculated by reference to the base year of 2023.
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General government defence expenditure in Finland amounted to 1.2% of GDP in 2021, 1.2% of GDP in 2022 and 1.4% of GDP in 2023( 54 ). According to the Commission 2025 Spring Forecast, expenditure on defence is projected at 1.5% of GDP in 2024 and 2.1% of GDP in 2025.
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Table A1.3: Net expenditure (outturn and forecast), annual and cumulated deviations vis-à-vis the recommendation |
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