| Summary: | This 2022 Article IV Consultation with Finland highlights that the economy recovered swiftly from the pandemic, but Russia’s war in Ukraine has worsened the outlook given Finland’s exposures to the fallout through trade and increase in energy prices, while high inflation and rising interest rates are weighing on household purchasing power. Long-standing structural challenges—from adverse demographics and low productivity growth—remain. Tighter financial conditions will test the resilience of Finland’s large financial system: banks are well capitalized, but vulnerable to liquidity shocks and exposed to credit risks from other Nordics and high household debt. Further measures to boost employment and productivity remain key to growth and sustainability. Advancing labor market reforms and making the collective wage bargaining more flexible while strengthening the coordination mechanism should play a supportive role and facilitate adjustment to shocks. Liquidity buffers should be strengthened and, when circumstances allow, systemic buffers re-instated and cyclical tools enhanced by introducing a positive neutral rate for the countercyclical capital buffer. A debt-to-income cap should be legislated to address vulnerabilities in household finances
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