Helsinki [Finland], December 16: The Organization for Economic Co-operation and Development (OECD) on Thursday urged Finland to increase productivity and the rate of employment to close the gap in living standards with other Nordic countries.
According to the OECD's latest "Economic Survey of Finland," the country recovered rapidly from the COVID-19 shock, but growth had stalled as a result of the Russia-Ukraine conflict. Soaring inflation has reduced household disposable income in the country and its trading partners, slowing the economy.
Fostering a stronger recovery and sustaining the country's high living standards would require measures to boost productivity, employment and innovation, the report said.
Finland's economy was likely to contract over the coming quarters, weighed down by high inflation, tightening monetary conditions and the curtailment of Russian gas supplies, it added.
Finland's gross domestic product (GDP) is projected by the OECD to grow by 2.2 percent in 2022, fall by 0.3 percent in 2023, then bounce back by 1.1 percent in 2024 once these headwinds pass.
The underlying conditions are expected to remain challenging over the coming two years, according to the report. Consumption will weaken in response to falling real wages but subsequently recover as wages rise.
Export growth will fall along with export markets, which are being hit by the reduction in gas supplies from Russia but will pick up as alternative energy sources are found. Business investment will remain weak through 2023, owing to weak economic activity and a more uncertain economic outlook, but strengthen in 2024 as the global outlook improves, the report has said.
The unemployment rate should peak at around 8 percent and only fall slightly by the end of 2024. Annual inflation will fall from 7 percent projected in 2022 to 3.1 percent in 2024, when the energy shock will have passed.
The economic slowdown has worsened public finances, delaying government action to stabilize the debt-to-GDP ratio in the long run. The OECD supports Finland's plan to achieve a structural budget deficit of 0.5 percent of GDP by the end of the decade, said Isabell Koske, OECD acting director of country studies.
"Regular, comprehensive spending reviews should be undertaken to identify consolidation measures," she added.
Source: Xinhua
