COMMISSION STAFF WORKING DOCUMENT Country Report Finland 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2019-02-27
Institutions: European Commission, Secretariat-General
Subjects: Finland, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 27.2.2019  SWD(2019) 1025 final  COMMISSION STAFF WORKING DOCUMENT Country Report Finland 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 
3.2.  Financial sector 
3.3.  Labour market, education and social policies 

3.4. Competitiveness reforms and investment 

Annex A: Overview Table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Investment Guidance on Cohesion Policy Funding 2021-2027 for Finland 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 

Key economic and financial indicators – Finland 

Assessment of 2018 CSR implementation 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

LIST OF GRAPHS 

Graph 1.1:  GDP growth and contributions 
Graph 1.2: 
Graph 1.3:  Quarterly harmonised index of consumer prices, Finland, year-on-year %-change 
Graph 1.4: 

Contributions to potential growth 

Regional disparities in Finland 

4 

7 

14 

17 

17 
21 
25 
34 

45 

49 

50 

56 

59 

13 
15 
50 
51 
52 
53 
54 
55 

7 
8 
8 
9 

1 

 
 
 
 
Graph 1.5: 

Breakdown of rate of change of nominal unit labour costs in Finland by change in 

inflation, real compensation of employee, productivity contribution), rate of change 

Graph 1.6: 
Graph 1.7: 

Graph 1.8: 

of nominal unit labour costs in the euro area 

Nominal unit labour costs in total economy (2010 = 100) 

Export market shares (EMS): EMS growth rate, export growth, world export growth 

(negative. sign) 

Breakdown of the balance of trade for goods (fuels included) 2001-2017 — Cost and 

non-cost competitiveness impact (1) 

Graph 1.9: 
Breakdown of external position (current and capital accounts) 
Graph 1.10:  Breakdown of the international investment position in % of GDP 
Graph 2.1:  Overall multiannual implementation of 2011-2018 country-specific recommendations 

to date 

Graph 3.1.1:  General government expenditure as a share of GDP, broken down by function, 

Finland and the EU 

Graph 3.1.2:  Environmental tax revenues as share of GDP 2016, in % 
Graph 3.2.1: 
Graph 3.2.2:  Overvaluation gap with respect to price/income, price/rent and fundamental model 

Interest burden of households and non-financial corporations 

valuation gap 
Graph 3.2.3:  Residential construction, % GDP 
Graph 3.2.4:  Lending growth year-on-year 
Graph 3.3.1:  Activity, employment and unemployment rates  (quarterly data) 
Graph 3.3.2:  Employment growth by sector 
Graph 3.3.3:  Beveridge curve 
Graph 3.3.4:  Activity rate by age and educational attainment in 2017 (20-64, %) 
Graph 3.3.5:  Reasons for inactivity by age (men, 2016) 
Graph 3.3.6:  Reason for inactivity by age (women, 2016) 
Graph 3.3.7:  Participation in early childhood education and care participation for less than 3- 

years -olds and younger (above) and participation for 4-year olds until school age 

(below) 

Graph 3.3.8: 

Trends in tertiary attainment in Finland by country of origin and gender (30-34 year 

olds) 

Graph 3.4.1: 
Graph 3.4.2:  Share of high, medium-high, medium-low and low technology in total manufacturing 

Total factor productivity (total economy) 

exports 

Intellectual property product investment in volume 

Graph 3.4.3:  Real labour productivity in manufacturing 
Graph 3.4.4: 
Graph 3.4.5:  Research and development gross capital formation by industry and year - flows 
Graph 3.4.6:  Evolution of public and business research and development intensity 
Graph 3.4.7:  Regions in Finland and factor endowments 

9 
10 

10 

11 
11 
12 

14 

17 
18 
22 

23 
23 
24 
25 
25 
27 
27 
28 
28 

32 

32 
34 

35 
35 
37 
37 
38 
43 

2 

 
 
 
LIST OF BOXES 

Box 2.1: EU funds help overcome structural challenges and foster development in Finland 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.4.1: Investment challenges and reforms in Finland 

16 
26 
36 

3 

 
 
 
 
EXECUTIVE SUMMARY 

its 

amid 

growth  potential 

Finland’s current economic growth provides an 
opportunity to increase the economy’s resilience 
and 
rising 
macroeconomic risks. Following a long and deep 
recession,  Finland’s  economy  is  now  growing 
healthily,  although  at  a  decelerating pace.  Finland 
shows  low  social  inequality  and  its  education 
system  is  performing  well.  However,  an  ageing 
population  weighs  on  Finland’s  potential  growth 
for  the  future.  Reforming  the  complex  social 
benefits system, teaching new skills and providing 
training  services  would  help  counterbalance  the 
impact  of  an  ageing  population.  Furthermore, 
investment 
research  and 
development  declined  during  the  financial  crisis, 
further  affecting  Finland’s  potential  for  growth. 
the 
these  challenges  will  make 
Addressing 
economy more resilient to external shocks. (1) 

in  equipment  and 

Strong  economic  growth  continued  in  2018, 
with  GDP  eventually  passing  its  peak  of  2008.  
Real GDP is expected to have increased by 2.5 % 
in  2018.  Solid  growth  was  underpinned  by  robust 
domestic  demand  while  the  contribution  from  net 
exports, which was very strong in 2017, weakened. 
Business  investment  is  set  to  continue  expanding, 
supported  by  rising  profits  and  persistently  low 
interest  rates.  Inflation  remains  below  the  EU 
average. The favourable economic cycle is helping 
the  government 
consolidate  public 
finances,  bringing  the  public  debt  ratio  below 
60 %.  Going  forward,  Finland’s  economic  growth 
is  projected  to  be  moderate  at  an  average  annual 
rate  of  1.8 %,  from  2.6 %  over  the  previous  three 
years, particularly as international trade expansion 
gradually loses momentum. 

further 

early 

labour  market  continues  to  recover, 
The 
showing 
tightening.  The 
signs  of 
employment rate has now reached a new high, but 
is  still  lower  than  in  other  Nordic  countries. 
Employment  growth  accelerated  in  2018,  with 
more  than  half  of  new  workers  being  previously 

(1)  This  report  assesses  Finland’s  economy  in  light  of  the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  delivering  high-quality  investment, 
efforts  on  productivity  growth, 
focusing 
reforms 
inclusiveness  and 
institutional  quality  and  ensuring 
macroeconomic stability and sound public finance. 

4 

inactive.  This  trend  should  continue  in  2019  and 
2020,  albeit  at  a  slower  pace.  The  unemployment 
rate has declined, rapidly approaching its structural 
level.  The  latter  improves,  but  remains  relatively 
high,  reflecting  disincentives  to  take  up  work  and 
growing  matching  problems  in  the  labour  market. 
Job  vacancies  are  rising  in  certain  sectors,  due  to 
skills shortages, mobility problems and the ageing 
population. 

Potential  growth  is  recovering  but  Finland’s 
ageing  population  is  expected  to  weigh  on 
future  economic  developments. Potential  growth 
has  improved  in  recent  years.  However,  it  is 
unlikely  to  return  to  pre-crisis  growth  rates  in  the 
medium  term  because  of  expected  losses  in  the 
remains 
working-age  population.  Productivity 
below  its  2009  level,  reflecting  a  shift  over  the 
decade  in  production  from  high  tech  goods  to 
medium tech goods. 

New  investment  is  mainly  concentrated  in 
construction, limiting therefore its contribution 
to  the  productive  capacity  of  the  economy. 
Overall investment remained among the highest in 
the  EU  and  showed  a  slight  increase.  However, 
investment  in  construction  accounted  for  almost 
60 %  of  overall  investment.  Although  recovering, 
investment  in  equipment  as  a  share  of  GDP 
remained  one  of  the  lowest  in  the  EU.  Its  growth 
might  also  slow  down  as  trade  with  non-EU 
countries  could  be  affected  by  rising  international 
tensions. With the disruptive technological change 
that affected Finland’s largest private research and 
development  spender  (Nokia)  a  decade  ago, 
Finland  experienced  a  sharp  decline  in  business 
spending  on  research  and  development.  Recovery 
has not been observed so far. 

Focusing  investments  (2)  on  human  capital,  on 
research  and  innovation,  and  on  energy  and 
transport  infrastructure,  would  strengthen  the 
long-term  growth  potential  of  Finland.  While 
the  overall  investment  level  in  Finland  appears 
largely  satisfactory,  investing  further  in  people's 
skills,  education  and  training  and  in  coordinated 
professional  services  to  the  unemployed  and  the 
inactive is needed to offset workforce losses from 
population ageing, reduce inactivity and long-term 
increase 
unemployment 
productivity. Employment would also benefit from 

potentially 

and 

(2)  Both private and public investment.  

 
 
                                                           
                                                           
Executive summary 

unemployed  find  work  now  fall  under  the 
responsibility of the Ministry for Education and 
not  with  the  Ministry  for  Employment.  This 
could  create  an  additional  barrier  to  join  up 
unemployment services. Regional pilots to test 
new service models might bring about progress 
in  this  area,  but  only  after  adoption  of  the 
regional reform. 

  Strengthening  the  monitoring  of  household 
debt:  the  Ministry  of  Justice  has  published  an 
assessment  on  the  merits  of  creating  a  credit 
registry.  Political  support  appears  sufficient  to 
create  the  registry  by  the  next  parliament. 
However,  it  is  likely  to  take  years  before  the 
registry is in place. 

On  Finland’s  progress  towards  its  national  targets 
under  the  Europe  2020  strategy,  the  employment 
rate  target  of  78 %  does  not  seem  out  of  reach  if 
the  positive  trend  of  the  previous  year  continues. 
The  poverty  rate  is  low  compared  to  the  EU 
average  and  has  recently  been  in  gradual  decline. 
The  early-school  leaving  rate  remained  slightly 
above  the  target  of  8 %.  The  very  ambitious 
research and development investment target of 4 % 
of GDP is unlikely to be met. Finland is broadly on 
track to reach its climate and energy targets. 

Finland  performs  well  on  the  indicators  of  the 
Social  Scoreboard  supporting  the  European 
Pillar  of  Social  rights.  Income  inequalities  are 
among the lowest in the EU and few people are at 
risk  of  poverty  or  social  exclusion.  Finland 
continues  to  have  a  generally  well  performing 
education system. However, a lack of coordination 
to  ensure  different  professional  services  to  the 
unemployed  and  the  inactive  poses  a  challenge. 
Access to health care remains a concern, given the 
relatively  high  unmet  need  for  health  services, 
especially  for  people  not  covered  by  occupational 
insurance. 

Other  key  structural  issues  analysed  in  this  report 
that  point  to  particular  challenges  for  Finland’s 
economy are the following: 

  Productivity  growth  remains  a  challenge.  A 
recovery  in  productivity  growth  is  essential  to 
ensure  future  economic  prosperity,  especially 
as Finland’s population is ageing and spending 
on  health  is  set  to  increase.  Other  factors  are 

in  social 

investment 
inclusion.  The  ratio  of 
research  and  development  to  GDP  has  not  yet 
recovered  from  the  crisis  years  and  appears 
insufficient  to  diversify  exports  towards  higher 
tech  goods  in  the  medium-term.  Amid  dispersed 
population, a lack of affordable housing in growth 
centres  and  transport  bottlenecks  may  prevent 
jobs.  The 
people 
decarbonisation of energy intensive industries and 
the transport sector will also require higher private 
and  public  investment.  Annex  D  identifies  key 
priorities  for  support  by  the  European  Regional 
Development Fund and the European Social Fund 
Plus  over  2021-2027,  building  on  the  analysis  of 
investment  needs  and  challenges  outlined  in  this 
report. 

from  moving 

find 

to 

Finland  has  made 
addressing 
the 
recommendations.  

limited  progress 

in 
country-specific 

2018 

There  has  been  limited  progress  in  the  following 
areas:  

  The  regional  government,  health  and  social 
services  reform:  parliamentary  debate  on  this 
reform  is  still  ongoing  and  its  adoption  is 
planned  before  the  general  election  in  April 
2019.  However,  the  timing  of  the  adoption  of 
the reform currently faces some uncertainty. 

  Improving  incentives  to  accept  work  by 
reducing  unemployment  traps:  the  Finnish 
authorities  are  waiting  for  the  outcome  of  the 
basic  income  experiment,  whose  preliminary 
results  were  presented  on  8  February  2019.  
The  experiment  is  expected  to  provide  some 
information  for  revision  of  the  benefit  system. 
Given the political agenda, no progress on this 
issue  is  expected  before  spring  2019.  The 
reform  of  the  benefit  system  is  likely  to  be  a 
major  issue  for  the  next  government.  The 
government  budget 
introduces 
additional measures for improving incentives to 
accept work.  

for  2019 

for 

the  unemployed  and 

  Ensuring  adequate  and  well-integrated 
services 
the 
inactive:  advice  and  guidance  to  youth  and 
young  adults  have  been  increased.  However, 
with  the  vocational  education  and  training 
the 
reform, 

to  help 

schemes 

training 

5 

 
 
holding  back  Finland’s  growth  potential:  its 
investment  in  research  and  innovation,  which 
has  the  most  potential  for  innovation  output, 
remains  in  decline.  Moreover,  it  is  rather 
narrowly  focused.  There  is  indeed  a  wide  and 
increasing  gap  between  the  most  productive 
firms  and  the  least  productive  ones.  Public 
support for research and development has also 
declined in recent years. 

  Inactivity  and  unemployment  traps  are  a 
barrier  to  a  better  use  of  the  labour  force. 
One of the main barriers to getting people back 
to  work  comes  from  the  benefits  system  and 
the  combination  of  different 
types  of 
allowances.  The  social  assistance  and  the 
housing  allowance  form  a  substantial  part  of 
this  barrier.  These  and  other  benefits  are 
phased out rapidly as  income  increases, which 
creates a risk that taking up work might not be 
The 
sufficiently 
complexity of the benefits rules combined with 
red  tape  result  in  people  being  put  off  going 
back to work.  

rewarding. 

financially 

  An  ageing  population  and  long-term  trends 
in  spending  on  care  pose  some  risks  for  the 
sustainability of public finances. The regional 
government,  health  and  social  services  reform 
aims  to  lower  expenditure  growth  in  these 
areas.  Other  objectives  are  equal  access  to 
healthcare  and  reduced  waiting 
times  for 
patients. Social and primary healthcare services 
would  become  available  from  both  public  and 
private  social  and  health  centres.  This  would 
give  patients  more  freedom  of  choice,  while 
competition  between  service  providers  and 
public management at a more central level are 
expected to yield cost savings.  

especially 

  Levels  of  household  debt  are  high,  but 
servicing  of  the  debt  remains  solid.  Low 
interest  rates  and  the  improved  economic 
outlook  have  increased  the  overall  volume  of 
lending, 
housing 
corporations (which provide a distinctive form 
of home ownership). Household debt therefore 
remains at a historically high level. It is mostly 
at  variable  rate.  Consumer  credit  is  also  rising 
lack  of  a  comprehensive 
rapidly.  The 
(collecting 
negative 
information on debtors) credit registry prevents 

positive 

through 

both 

and 

Executive summary 

banks  from  having  a  clear  overview  of 
households’  overall  debt.  However,  the  non-
performing  loans  ratio  of  the  banking  sector 
remains one of the lowest in Europe and banks 
are  well  capitalised.  The  authorities  have 
already  taken  and  are  considering  further  pre-
emptive  measures 
rising 
to 
household debt. 

restrict 

the 

  A  new  Finnish  wage-setting  model  has 
emerged,  but 
labour  mobility  remains 
rather limited. In the new wage-setting model, 
pay  rises  in  the  non-tradable  sector  are  linked 
to  the  increases  first  agreed  in  the  exporting 
sectors. However, no formal agreement on this 
model  has  been  reached.  Wage  increases  are 
expected  to  be  kept  in  check,  but  upwards 
pressure  on  wages  is  likely  as  the  labour 
market gradually tightens. Labour shortages are 
growing  in  certain  sectors  as  a  result  of  skills 
shortages  and  population  ageing,  while  a  lack 
of  affordable  housing  in  growth  centres  may 
limit possibilities to move to find jobs. A fully 
modernised  legislative  framework  on  zoning 
and planning is considered. 

  Despite a recent steady rise, the employment 
rate  at  76.3  %  of  20-64  year-olds  is  still 
lower  than  in  other  Nordic  countries.  The 
service system is not responding sufficiently to 
people  who  have  special  needs  and  are  unable 
to  work  full-time.  In  particular,  rehabilitation 
and  training  programmes  are  not  linked  with 
effective  services 
In 
addition,  supporting  services  are  still  not 
sufficiently  integrated  and  as  a  result  may 
prolong  unemployment  spells  for  people  in  a 
vulnerable  position.  A  joined-up  approach  to 
services  exists  for  some  target  groups  such  as 
young  and  long  term  unemployed,  but  not  for 
all. 

jobseekers. 

to  help 

6 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

Following  healthy  growth  (2.8 %)  in  2017, 
economic  growth  is  expected  to  have  slowed  in 
2018 (Graph 1.1). GDP growth is projected to have 
remained  relatively  strong  at  2.5 %  in  2018, 
supported  by  exports,  equipment  investment  and 
private  consumption.  Financing  conditions  for 
investment  remained  favourable,  and  business 
confidence  was  still  strong.  High  consumer 
confidence  and  rising  employment  fuelled  an 
increase  in  private  consumption.  The  economy  is 
expected  to  continue  expanding  by  1.9 %  in  2019 
and  1.7 % 
in  2020,  with  domestic  demand 
remaining  the  main  driver.  Despite  lukewarm 
developments  in  external  demand,  net  exports  are 
expected  to  continue  contributing  to  growth,  as 
Finland  benefits 
cost 
competitiveness. 

improved 

from 

its 

Graph 1.1:  GDP growth and contributions 

Source: European Commission (Winter forecast 2019) 

Potential GDP growth 

A declining working age population is expected 
to weigh on Finland’s already moderate growth 
potential.  Potential  growth  has  accelerated  to 
1.8 % recently. However, from 2021, the shrinking 
workforce  is  forecasted  to  pull  growth  potential 
back  down  gradually  (see  Graph  1.2).  This 
negative 
to  progressively 
is  expected 
strengthen over the years, at least until 2050. 

impact 

that  are 

In parallel, productive categories of investment 
have sharply declined or remain relatively low, 
entailing  a  risk  that  Finland’s  economy  will  be 
trapped  in  relatively  low  growth  (see  Section 
3.4).  Finland’s  investment,  as  a  share  of  GDP, 
remains  below  its  EU  peers  (3)  for  investment 
categories 
the  most  supportive  of 
productivity  growth.  This  is  especially  true  for 
equipment investment, despite the cyclical rebound 
observed  in  recent  quarters.  Last  year,  business 
investment was clearly on the rise, but companies 
increasingly  built  up  sizeable  financial 
also 
reserves. 
the  disruptive 
technological  change  that  affected  the  country’s 
largest  private  research  and  development  spender 
intellectual  property 
(Nokia)  a  decade  ago, 
investment appeared to stabilise at a level close to 
the  EU  average  but  below  the  level  of  Finland’s 
EU peers. This  is expected  to  affect  the  country’s 
medium-term  productivity  growth.  Therefore,  in 
the  medium  term,  potential  growth  is  unlikely  to 
return to its high pre-financial crisis levels. 

In  parallel, 

after 

still  has 

the  highest 

level  of 
Finland 
construction  investment  in  the  EU,  especially 
housing 
favourable 
construction.  Beyond 
conditions  provided  to  borrowers,  this  reflects  an 
ongoing move of the population from rural areas to 
dynamic  urban  centres.  Housing  construction  is  a 
non-productive  category  of  investment.  However, 
amid 
is 
expected  to  contribute  to  allocative  efficiency 
usefully (see sections 3.2.3 and 3.4.1).   

labour  mobility, 

limited  regional 

it 

Inflation 

Inflation  is  expected  to  gradually  pick  up  (see 
Graph 1.3). In 2018, inflation remained below the 
euro area average due to a rather modest rise in the 
prices  of  services.  Increases  in  labour  costs  and 
energy  prices  were  the  main  drivers  of  inflation. 
As  a  result  of  a  stronger  pass-through  effect  of 
wage  increases  pushing  up  prices  of  services, 
headline 
to  gradually 
forecast 
accelerate to close to 2 % in 2020.  

inflation 

is 

(3)  In  the  present  report,  the  expression  ‘EU  peers’  will  be 
used  for  EU  countries  with  an  almost  equivalent 
development  level  or  similar  type  of  economy.  In  the 
present  case,  this  group  includes  Sweden,  Denmark, 
Germany,  Austria,  the  Netherlands.  The  expression  ‘EU 
Nordic peers’ will be used for Sweden and Denmark only. 
The  expression  ‘Nordic  peers’  will  encompass  Norway  as 
well. 

7 

-10-8-6-4-2024680405060708091011121314151617181920%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growthforecast 
 
 
 
                                                           
1. Economic situation and outlook 

Graph 1.2:  Contributions to potential growth 

Graph 1.3:  Quarterly harmonised index of consumer 
prices, Finland, year-on-year %-change 

TFP: total factor productivity 
PF potential growth:  production function potential growth 
Source: European Commission 

Social developments 

Source: European Commission 

Labour market 

The unemployment rate is falling thanks to the 
economic  upswing.  The  growth  in  employment 
accelerated  to 2.3 %  in 2018,  with  more  than half 
of  the  new  workers  coming  from  inactivity.  This 
trend  is  expected  to  continue  in  2019  and  2020, 
albeit at  a  slower pace. After  two  years of  a  slow 
decrease,  the  unemployment  rate  declined  rapidly 
from 8.5 % in the third quarter of 2017 to 7.3 % in 
the  same  period  in  2018.  It  is  approaching  its 
structural  level,  estimated  at  7.0 %  (4),  slightly 
below  the  EU  average.  The  structural  rate  of 
unemployment    improves,  but  remains  relatively 
high. Possible reasons for this include still limited 
incentives to accept work and the relatively limited 
regional mobility. In parallel, labour shortages are 
growing in certain sectors, due to skills shortages, 
mobility issues and an ageing population.  

(4)  Latest 

'non-accelerating-wages  rate  of  unemployment' 

estimate for 2018 by the European Commission. 

Overall  inequalities  remain  low  but  the  risk  of 
poverty for children with low-skilled parents is 
of concern. In terms of income inequality, Finland 
ranks  among  the  best  performers  in  the  EU.  In 
2017,  the  income  of  the  richest  20 %  of  the 
population  was  stable  at  3.5  times  that  of  the 
(EU  average:  5.1).  However, 
poorest  20 % 
children  of  low-skilled  parents  face  a  high  and 
increasing risk of poverty or social exclusion (from 
45.0 %  in  2010  to  63.1 %  in  2017,  EU  from 
59.8 %  to  62.9 %).  Inequalities  in  education  are 
low.  The  variation 
for 
in 
International Student Assessment (5) scores due to 
the  socio-economic  background  of  parents  is 
among the lowest in the EU. 

the  Programme 

The  risk  of  poverty  has  continued  to  decline 
since  peaking  in  2011.  The  recent  economic 
upturn  has  led  to  a  decrease  in  the  inactive 
long-term  unemployed.  The 
population  and 
population  at  risk  of  poverty  or  social  exclusion 
fell  from  16.6 %  in  2016  to  15.7 %  in  2017,  well 
below  the  EU  average  of  22.5 %.  The  income 
transfer system performs above the EU average in 
reducing income inequality.  

(5)  The  Programme  for  International  Student  Assessment  is  a 
worldwide  study  by  the  Organisation  for  Economic  Co-
operation  and  Development  in  member  and  non-member 
nations intended to evaluate educational systems.  

8 

-0,50,00,51,01,52,02,53,0050607080910111213141516171819202122Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growthforecast-1,000,001,002,003,001314151617181920%forecast 
 
                                                           
 
 
                                                           
1. Economic situation and outlook 

house  prices  and  household  indebtedness  (see 
Section  3.2.3).  Overall,  large  or  mid-sized  cities 
with  universities,  such  as  Tampere  and  Turku, 
steadily  grow.  Conversely,  rural  heartland  areas, 
sparsely  populated  rural  areas  as  well  as  smaller 
cities and towns have lower growth prospects and 
face specific challenges. This may suggest that the 
sustainability  of  regional  convergence  depends 
crucially  on 
to  enhance 
innovation performance, business environment and 
skills  in  each  region  based  on  their  specific 
competitive  advantages  and  potentials 
(see 
Sections 3.3 and 3.4).  

investment 

targeted 

Graph 1.5: 

Breakdown of rate of change of nominal unit 
labour costs in Finland by change in inflation, 
real compensation of employee, productivity 
contribution), rate of change of nominal unit 
labour costs in the euro area 

(1) IC-42: with 42 industrial countries; IC-37: with 37 industrial 
countries 
Source: European Commission 

Disparities  in  the  labour  market  are  limited. 
Finland’s  employment  rate  over  2015-2017  was 
2.5 percentage points above the EU average.  The 
rate ranged from 1 percentage point below the EU 
average in Northeast to 16 percentage points above 
the  EU  average  in  Åland  Islands,  the  least 
populated  European  region,  with 
the  highest 
employment rate in the EU. In the Greater Helsinki 
area,  employment  rate  was  6.5  percentage  points 
above 
national 
unemployment  rate  of  8.6 %  in  2017  was  higher 
than  the  EU  average  of  7.6 %.  Some  regions  are 
facing  labour  shortages  in  the  fastest  growing 
sectors.  Disparities  in  educational  attainment  and 
early school leaving are visible between cities and 
rural  areas,  and  this  could  lead  to  more  persistent 

average. 

The 

EU 

the 

Regional disparities 

Regional  disparities  in  Finland  have  decreased 
in  recent  years.  In  many  EU  Member  States,  the 
regional  divide  measured  by  GDP  per  head  is 
higher  than  in  Finland.  Still,  the  Greater  Helsinki 
area's  GDP  accounted  for  39  %  of  the  national 
GDP in 2016, against a population share of 30 %. 
Its  GDP  per  head  (at  144  %  of  the  EU  average) 
was  1.6  times  higher  than  that  of  the  less 
developed  East-North  region.  However,  between 
2010 and 2016, productivity relative to EU average 
decreased the most (by 11 percentage points) in the 
Greater Helsinki area (see Graph 1.4). At the same 
time,  the  Helsinki-Uusimaa  region  remained  the 
main net recipient of domestic migration. This fed 
into  a  population  increase of  almost 7  %  between 
2010  and  2016,  faster  than  in  the  EU  on  average, 
while  the  natural  growth  of  population  almost 
stopped  in  Finland.  Furthermore,  the  population 
with  a  migrant  background  is  concentrated  in  the 
largest  cities,  especially  in  the  Greater  Helsinki 
area (see Section 3.3.2).  

Graph 1.4: 

Regional disparities in Finland 

Source: European Commission 

A  certain  level  of  urban-rural  divide  remains. 
The movement of the population from countryside 
to urban areas is a continuing process and one that 
is  far  from  complete.  This  partly  reflects  higher 
employment  opportunities  in  urban  areas,  and 
especially  in  the  Greater  Helsinki  area.  Large 
regional  disparities  are  therefore  a  constant  in 

9 

20406080100120140160GDP per headGDP per headchangeInvestmentratePopulation growthProductivityIndex, EU=100EUNon-capital regionsCapital regionFinland average-6-4-20246810080910111213141516171819Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal Compensation per EmployeeNominal unit labour cost in FinlandULC in Euro Areaforecast 
 
 
 
1. Economic situation and outlook 

unemployment  and  social  exclusion  in  the  latter. 
The at risk of poverty or social exclusion rates do 
not  vary  significantly  between  regions,  but  long 
distances  could  hamper  access  to  services  in 
sparsely populated areas (see Section 3.3.2).   

Competitiveness 

Labour  costs  have  decreased  in  Finland  in 
recent years and competitiveness has improved. 
In  2017,  the  average  compensation  of  employees 
in  the  country  decreased  by  1.2 %  (Graph  1.5), 
while  productivity  growth  remained  strong.  As  a 
result,  nominal  unit 
labour  costs  markedly 
improved  (-2.7 %).  At  the  same  time,  Finland 
benefited  from  higher  labour  costs  developments 
in  the  economies  of  its  main  competitors  (see 
Graph  1.6).  This  added 
the  recovery  of 
competitiveness.  

to 

Graph 1.6:  Nominal unit labour costs in total economy 

(2010 = 100) 

employees  in  GDP  is  close  to  its  lowest  levels 
ever. This suggests that cost competitiveness, after 
a few years of rapid improvement, would slow.  

Export  market  shares  continue  to  recover  (see 
Graph 1.7). Data for 2017 confirmed the end of the 
decline in export market shares that had started in 
2009.  This  is  largely  on  the  back  of  a  continuous 
marked  improvement  in  cost  competitiveness  (see 
Graph  1.8).  Overall,  exports  benefited  from  a 
recovery  in  external  trade,  while  imports  were 
subdued,  as  wage  growth  and  investment  growth 
moderated.  Only  limited  ex  post  market  share 
gains  are  expected  in  2019  and  2020.  Exports  are 
likely to lose steam, with external demand slowing 
down,  only  partly  counterbalanced  by  improved 
cost-competitiveness. 

Graph 1.7: 

Export market shares (EMS): EMS growth rate, 
export growth, world export growth (negative. 
sign) 

Source: European Commission 

Source: European Commission 

to 

reverted 

However,  further  cost-competitiveness  gains 
might  soon  become  elusive.  In  2018,  nominal 
compensations 
growth,  while 
productivity  growth  weakened.  This  pulled 
nominal  unit  labour  costs  slightly  upwards.  Their 
upturn  is  expected  to  continue  in  2019  and  2020. 
Indeed, despite the emergence of the Finnish wage 
setting  model  (see  Section  2  and  Box  3.4.1  in 
Section 3.4.1), upward pressure on wages is likely 
in a context of a shrinking working age population 
and  persistent  skills  shortages  (see  Section  3.3.1). 
At  the  same  time,  the  share  of  compensation  for 

shift 

specialisation 

After 
several  years  of  decline,  non-cost 
competitiveness  may  also  have  stabilised.  After 
the  setback  of  its  electronics  sector,  Finland 
experienced  a 
from 
in 
consumer  towards  intermediate  goods  and  from 
high  tech  to  medium  tech  industrial  sectors.  This 
was accompanied by a concomitant decline in total 
factor 
an 
insufficient  level  of  investment  in  research  and 
development  and  innovation.  In  recent  quarters, 
rising  operating  surpluses  and  high  financial 
buffers  have  prompted  enterprises  to  resume 
investment.  This  has  been  positive  for  non-cost 
competitiveness. After several years of decline, the 

productivity,  which 

highlighted 

10 

-40-30-20-1001020300102030405060708091011121314151617Rate of change y-o-y (%)Contribution: World export growth (euros, neg. Sign)Contribution: Export growth (euros)Export market share growth rate 
 
 
1. Economic situation and outlook 

investment 

foreign  direct 

Finland’s  net  international  investment  position 
in  2018.  The  net 
turned  negative  again 
international 
improved 
position 
investment 
from  -3.2 %  of  GDP  in  2014  to  2.4 %  in  2017  as 
net 
strengthened. 
However, in 2018, the net international investment 
position  turned  negative  again,  but  at  very  low 
level in an EU comparison (see Graph 1.10). This 
partly  reflected  the  larger  than  expected  current 
account  deficit.  The  net  international  investment 
position  is  expected  to  remain  negative  in  2019-
2020.  This  would  be  consistent  with  the  ongoing 
recovery and higher investment levels financed by 
external  borrowing  and  healthy  foreign  direct 
investment.  

Graph 1.9: 

Breakdown of external position (current and 
capital accounts) 

Source: European Commission 

Financial sector 

Finland’s  banking  system  remains  stable  while 
risks have increased. After Nordea Group moved 
its headquarters to Helsinki on 1 October 2018, the 
lenders 
aggregated  assets  of  Finland-based 
increased to over four times the Finnish GDP, one 
of the highest ratios in the EU. The banking sector 
is heavily reliant on market funding and Nordea’s 
move augments the already substantial exposure to 
other  Nordic 
systems.  However, 
regarding financial stability at present, the ratio of 
non-performing loans remains one of the lowest in 
Europe and the authorities are proactively keeping 
the  banking  system  well-capitalised  and  trying  to 

financial 

trade  surplus 
from  non-cost  competitiveness 
reverted to growth quite markedly (see Graph 1.8). 
That said, no rebound has been observed so far in 
intellectual  property  investment  (see  Graphs  3.4.4 
and 3.4.5 and Section 3.4). Similarly, a reversal in 
the  downwards  shift  in  specialisation  is  not  yet 
visible,  but  the  technological  level  in  exports  of 
goods has broadly stabilised. 

Graph 1.8: 

Breakdown of the balance of trade for goods 
(fuels included) 2001-2017 — Cost and non-
cost competitiveness impact (1) 

(1) Only goods for which both imports and exports, as well as 
volumes, are registered are taken into account 
Source: European Commission 

External position 

as 

the  primary 

Finland’s  current  account  deficit  increased  in 
2018 
income  balance 
deteriorated. Finland’s net exports of goods partly 
recovered  in  2017-2018.  In  parallel,  the  external 
deficit  on  services  gradually  closed.  Exports  of 
services  grew  faster  than  imports,  closing  the  gap 
opened during the setback of the electronics sector, 
when exports of digital services were also affected. 
The primary income balance deteriorated in 2018, 
as  remuneration  of  foreign  investment  in  Finland 
improved  faster  than  that  of  Finnish  investment 
abroad  (see  Graph  1.9).  The  secondary  income 
overseas 
balance 
development  and  military  aid)  remained  largely 
negative.  Overall,  in  2018,  the  current  account 
deficit is expected to have slightly grown to 1.0 % 
of  GDP.  It  is  expected  to  contract  in  2019  and  to 
almost  close  in  2020,  as  the  external  balance  of 
goods and services turns increasingly positive. 

(contributions 

EU, 

to 

11 

-25-20-15-10-505101520250102030405060708091011121314151617US$ billionscostnon-cost-6-4-202468101200010203040506070809101112131415161718% of GDPCapital accountSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA) 
 
 
1. Economic situation and outlook 

2019  are  expected  to  reduce  the  government 
spending  by  EUR 0.7  billion  or  0.3 %  of  GDP 
annually.  In  2018,  the  impact  of  these  measures 
was  mitigated  by  the  simultaneous  decrease  in 
government  revenues,  due  to  cuts  in  taxation  of 
personal  income  and  social  contributions.  With 
additional  negative  impacts  from  some  temporary 
factors,  the  general  government  balance  in  2018 
deteriorated 
in  2017 
to  -0.8 %.  In  2019,  the  expenditure  measures 
combined  with  the  increase  of  indirect  taxes  will 
help  improve  the  general  government  balance 
to -0.2 % of GDP. 

slightly 

-0.7 % 

from 

The debt ratio is expected to fall below the 60 % 
benchmark  in  2018.  The  general  government 
gross  debt  is  forecast  to  decrease  from  61.3  %  of 
GDP  in  2017  to  59.8 %  in  2018  and  58.5 %  in 
2019, after a peak at 63.5 % of GDP in 2015. The 
Commission  projects 
to  start 
increasing  again  towards  the  end  of  the  2020s. 
This points to a fiscal sustainability risk in the long 
term. The main driver is the increase in age-related 
costs,  in  particular  healthcare  and  long-term  care 
expenditure.  

the  debt  ratio 

curb  households’  indebtedness  (see  Sections 3.2.1 
Banking and 3.2.4 Household debt). 

Graph 1.10:  Breakdown of the international investment 

position in % of GDP 

Source: European Commission 

Housing market 

to 

Overall,  house  prices  in  real  terms  remained 
broadly  unchanged  in  2018.  The  prices  of  new 
buildings increased marginally, while the prices of 
the  existing  stock  decreased.  In  real  terms,  house 
price  indices  clearly  show  no  price  pressures. 
House  prices  relative  to  rent  levels  and  income 
continue 
trend.  This 
face  a  downward 
development  is  most  likely  the  result  of  a  high 
number  of  newly  completed  houses  with  the 
residential construction sector being at the peak of 
the cycle. While prices are stable on average, there 
are  sizeable  regional  variations,  with  Helsinki 
metropolitan  area  and  growth  centres  booking 
solid  price  increases  and  the  rest  of  the  country 
seeing  a  constant  decrease  in  housing  prices 
(Section 3.2.3). 

Public finances 

The government continues to consolidate public 
finances.  The  expanding  economy  and  rising 
employment  are  set  to  improve  public  finances 
further on the back of increasing tax revenues and 
decreasing  social  spending.  The  government 
continues  to  implement  the  consolidation  plan 
agreed  at  the  beginning  of  its  term  in  2015.  The 
expenditure-side  measures  planned  for  2018  and 

12 

-200-150-100-50050100000102030405060708091011121314151617% of GDPReserve assetsNet portfolio investment, equity and investment fund shares/unitsNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock optionsNet Int'l investment position (NIIP)Marketable debt (NIIP minus FDI and shares) 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators – Finland 

(1) Net International Investment Position excluding direct investment and portfolio equity shares         
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation. 
Source: Eurostat and European Central Bank as of 31-1-2019, where available; European Commission for forecast figures 
(Winter forecast 2019 for real GDP and harmonised index of consumer prices, Autumn forecast 2018 otherwise). 

13 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)4,0-0,8-0,42,52,82,51,91,7Potential growth (y-o-y)2,50,40,21,11,51,81,81,6Private consumption (y-o-y)3,61,10,72,01,3...Public consumption (y-o-y)1,50,70,31,8-0,5...Gross fixed capital formation (y-o-y)4,7-2,0-2,38,54,0...Exports of goods and services (y-o-y)8,7-1,4-0,24,07,5...Imports of goods and services (y-o-y) 8,30,60,85,63,5...Contribution to GDP growth:Domestic demand (y-o-y)3,20,3-0,13,31,5...Inventories (y-o-y)0,3-0,20,1-0,20,1...Net exports (y-o-y)0,6-0,8-0,4-0,61,4...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,5-0,1-0,10,40,70,80,80,4Capital accumulation (y-o-y)0,70,50,20,40,50,50,50,6Total factor productivity (y-o-y)1,30,00,00,30,40,50,50,6Output gap1,2-1,2-3,0-2,0-0,80,30,60,9Unemployment rate8,07,78,88,88,67,87,26,9GDP deflator (y-o-y)1,32,22,00,60,80,91,62,0Harmonised index of consumer prices (HICP, y-o-y)0,92,71,10,40,81,21,41,8Nominal compensation per employee (y-o-y)3,43,01,31,1-1,21,42,22,4Labour productivity (real, person employed, y-o-y)2,4-1,00,12,31,5...Unit labour costs (ULC, whole economy, y-o-y)1,04,01,2-0,9-2,70,81,11,3Real unit labour costs (y-o-y)-0,31,8-0,8-1,5-3,5-0,1-0,5-0,7Real effective exchange rate (ULC, y-o-y)0,21,20,6-1,5-2,51,0-1,6-0,8Real effective exchange rate (HICP, y-o-y)-1,4-0,80,71,3-0,52,3-1,3-0,5Savings rate of households (net saving as percentage of net disposable income)0,81,70,3-1,5-2,1...Private credit flow, consolidated (% of GDP)10,37,23,81,47,3...Private sector debt, consolidated (% of GDP)116,6143,7150,1148,5146,1...of which household debt, consolidated (% of GDP)47,359,665,367,067,0...of which non-financial corporate debt, consolidated (% of GDP)69,384,084,781,579,1...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)0,60,91,11,31,1...Corporations, net lending (+) or net borrowing (-) (% of GDP)4,03,23,44,24,84,44,03,9Corporations, gross operating surplus (% of GDP)27,323,821,922,824,524,725,225,9Households, net lending (+) or net borrowing (-) (% of GDP)-2,9-1,7-1,8-3,2-3,8-3,3-3,1-2,9Deflated house price index (y-o-y)6,00,3-1,1-0,30,5...Residential investment (% of GDP)6,46,05,76,16,4...Current account balance (% of GDP), balance of payments4,10,2-1,6-0,7-0,70,10,81,5Trade balance (% of GDP), balance of payments4,80,9-0,8-1,00,3...Terms of trade of goods and services (y-o-y)-2,2-1,11,80,3-0,3-0,60,50,9Capital account balance (% of GDP)0,1.0,00,10,1...Net international investment position (% of GDP)-16,48,40,70.0*2,4...NIIP excluding non-defaultable instruments (% of GDP) (1)13,25,02,9.6,1...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)117,6225,9245,5221,9176,6...Export performance vs. advanced countries (% change over 5 years)3,9-10,5-22,9-16,7-8,6...Export market share, goods and services (y-o-y)..-3,53,13,5...Net FDI flows (% of GDP)-1,41,8-5,05,7-0,8...General government balance (% of GDP)3,5-0,8-2,9-1,7-0,7-0,8-0,2-0,1Structural budget balance (% of GDP)..-1,1-0,5-0,2-0,8-0,6-0,7General government gross debt (% of GDP)38,744,860,163,061,359,858,557,5Tax-to-GDP ratio (%) (3)42,041,743,944,243,442,642,542,1Tax rate for a single person earning the average wage (%)30,929,630,530,8....Tax rate for a single person earning 50% of the average wage (%)20,118,619,118,7....forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

77  % 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Finland  have 
recorded  at  least  ‘some  progress'.  (6)  Over  the 
past  years,  Finland  has  been  addressing 
the 
challenges in the area of the long-run sustainability 
of  public  finances  by  adopting  a  pension  reform 
that  came  into  force  in  2017.  External  sector 
challenges  have  abated  and  cost  competitiveness 
has  improved  in  particular  owing  to  the  measures 
in  the  Competitiveness  Pact  of  2016.  Finland  has 
also  taken  action  to  increase  incentives  to  accept 
work  and  to  strengthen  active  labour  market 
policies. 

Graph 2.1:  Overall multiannual implementation of 2011-
2018 country-specific recommendations to 
date 

(1) The overall assessment of the recommendations related 
to fiscal policy excludes compliance with the Stability and 
Growth Pact.  
2011-2012: Different assessment categories.  
The multiannual assessment looks at the implementation 
since the recommendations were first adopted until the 
2018 Country Report. 

Source: European Commission 

The  pension  reform  has  strengthened  the  long-
run sustainability of public finances. The ageing 
population  puts  pressure  on  the  pension  and 
healthcare  systems.  The  reform  of  the  earnings-
related  pension  system,  which  linked  statutory 
retirement age to life expectancy, was legislated in 
late  2015.  Under  the  reform,  the  lowest  statutory 
retirement  age  has  gradually  started  to  rise  as  of 
2018  from  63  to  65.  This  should  in  turn  raise  the 
real retirement age, which was 61.1 years in 2016, 
towards the target of 62.5. Efforts to improve cost-
efficiency of healthcare services are still ongoing. 

(6)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular Section 3. 

of 

of 

the 

gradual 

improvement 

The 
cost 
competitiveness  has  been  supported  by  the 
implementation 
country-specific 
recommendations  since  2014.  Progress  has  been 
made  in  aligning  wage  growth  with  productivity 
developments,  which  has  resulted  in  a  slower 
increase  of  unit  labour  costs  and  improved  cost 
competitiveness  relative  to  competitor  economies. 
In  2016,  the  social  partners  agreed  on  measures 
that would reduce labour costs further in 2017. The 
Competitiveness  Pact  increased  annual  working 
time  without  additional  compensation,  included  a 
wage  freeze  of  12  months  and  shifted  social 
security 
the 
employees. A new Finnish wage-setting model has 
emerged.  In  this  model,  pay  rises  in  the  non-
tradable  sector  are  linked  to  the  increases  first 
agreed in the tradable sector. However, no formal 
agreement on this model has been reached. 

contributions 

towards 

partly 

in 

Reforms  in  the  labour  market  have  advanced. 
In  order  to  increase  incentives  to  work,  the 
earnings-related unemployment insurance has been 
to  activate 
cut 
unemployed  job  seekers,  such  as  increasing  the 
conditions  for  benefits,  have  been  introduced. 
Measures  to  increase  entrepreneurship  have  also 
been launched. 

time.  Several  measures 

its 

limited  (7)  progress 
in 
Finland  has  made 
addressing 
country-specific 
2018 
recommendations.  To  improve  the  long-term 
sustainability  of  public  finances,  work  to  reform 
the regional government, health and social services 
continued.  However,  parliament  has  not  finalised 
and adopted the necessary legislation by February 
2019.  

On  addressing 
labour  market  and  social 
challenges,  the  government’s  budget  proposal 
for  2019  introduces  limited  measures  to  foster 
employment. The focus is on addressing the need 
to 
low 
employment  potential,  combating  skill  shortages 
and  reducing  the  time  spent  gaining  employment. 
On  incentives  to  work,  the  Finnish  authorities  are 

the  position  of 

those  with 

improve 

(7)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
the 
country-specific  recommendation 
overview table in the Annex. This overall assessment does 
not include an assessment of compliance with the Stability 
and Growth Pact.  

is  presented 

in 

14 

23 %53 %24 %No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2018 CSR implementation 

(1) This does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

waiting  for  the  outcome  of  the  basic  income 
experiment,  whose  preliminary 
results  were 
presented  on  8  February.  The  experiment  is 
expected to provide some information for revising 
the social security system. 

in 

to  assess  developments 

Limited progress is observed on monitoring the 
household  debt.  An  expert  working  group  has 
been  set  up 
the 
household  debt  and  possibilities  to  introduce  new 
legal macroprudential instruments. The Ministry of 
Justice  has  commissioned  a  report  proposing  the 
establishment  of  a  centralised  comprehensive 
(collecting both  positive  and negative  information 
on  debtors)  credit  registry.  The  proposal  is  now 
under  consultation,  after  which  the  matter  will  be 

further assessed. Any legislation in this area would 
not  be  tabled  before  the  next  general  elections  in 
April 2019. 

The European Structural and Investment Funds are 
important in addressing key challenges to inclusive 
growth  and  convergence  in  Finland,  notably  by 
supporting  competitiveness  and  boosting  research 
and 
and 
creating 
facilitating  education  and  training.  The  European 
Structural and Investment Funds also contribute to 
enhancing  labour  market  access  for  migrants  and 
other vulnerable groups. 

employment 

innovation, 

15 

Finland Overall assessment of progress with 2018 CSRs: Limited progress CSR 1: Achieve the medium-term budgetary objective in 2019, taking account the allowances linked to the implementation of the structural reforms for which a temporary deviation is granted.   Ensure the adoption and implementation of the administrative reform to improve cost-effectiveness and equal access to social and healthcare services. Finland has made limited progress in addressing the fiscal-structural part of CSR 1 (1):  The draft laws concerning the regional social and health care services reform are still expected to be adopted during the first quarter of the year 2019. CSR 2: Improve incentives to accept work   and ensure adequate and well-integrated services for the unemployed and the inactive. Finland has made limited progress in addressing CSR 2:  Limited progress has been achieved on reducing inactivity and unemployment traps.  Limited progress has been made, as the general government budget for 2019 introduces further measures for promoting employment.  CSR 3: Strengthen the monitoring of household debt,  including by setting up a credit registry system. Finland has made limited progress in addressing CSR 3:  Limited progress has been achieved on strengthening the monitoring of the household debt.  Limited progress is observed on setting up a credit registry system.    
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds help overcome structural challenges and foster development in Finland 

Finland is a beneficiary of European Structural and Investment Funds support. EU funds allocated to 
Finland  in  facing  development  challenges  amount  to  EUR 3.8  billion  in  the  current  multiannual  financial 
framework  (2014-2020),  potentially  representing  around  0.2 %  of  GDP  annually.  At  of  the  end  of  2018, 
some  EUR  2.8  billion  (around  73  %  of  the  total)  was  already  allocated  to  specific  projects.  In  addition, 
EUR 139.8 million was allocated to specific projects on strategic transport networks through a dedicated EU 
funding  instrument,  the  Connecting  Europe  Facility.  Furthermore,  numerous  Finnish  research  institutions, 
innovative firms and individual researchers benefited from other EU funding instruments, notably Horizon 
2020 which provided EUR 766 million. 

in 

identified 

funding  has  helped 

to  address  policy  challenges 

EU 
the  country-specific 
recommendations.  The  European  Structural  and  Investment  Funds  contribute  to  enhancing  Finland’s 
capacity to deliver innovative products, services and high-growth companies and help to create employment 
opportunities  by  promoting  labour  market  access,  education,  training  and  social  inclusion  for  people  in 
unemployment  or  inactivity.  The  European  Social  Fund  helps  to  create  employment  opportunities  by 
promoting  labour  market  access,  education,  training  and  social  inclusion  for  people  in  unemployment  or 
inactivity.  It  contributes  also  to  tapping  the  full  potential  of  the  workforce  by  enhancing  labour  market 
outcomes for migrants and other vulnerable groups. By 2018, 190 000 people attended projects investing in 
human  capital,  9 000  companies  in  projects  run  by  research  and  development  institutions,  and  4 300 
companies  in  projects  to  promote  growth  and  international  business  operations.  Over  1300  companies 
started to export or expand their exports. More than 1800 products and services were developed and piloted 
in innovation platforms. Horizon 2020 supported over 1200 research projects covering a very broad thematic 
spectrum from accelerating uptake of nanotech materials to smart electric mobility in cities. 

EU funding contributes to mobilisation of private investment. The European Structural and Investment 
Funds  mobilise  additional  private  capital  by  allocating  about  EUR 21.5  million  in  the  form  of  guarantees 
and equity. With national co-financing, this is expected to leverage additional private investment amounting 
to  EUR 220  million.  In  addition,  the  approved  operations  by  the  European  Investment  Bank  with  the 
European Fund for Strategic Investments amount to EUR 1.9 billion, which is set to trigger a total of EUR 
7.8 billion in additional private and public investment. 7 301 small and medium-sizes enterprises and mid-
cap companies are expected to benefit from this support. "Epiqus social impact bond" is a notable example 
of  such  project  in  Finland.  The  European  Investment  Fund  is  investing  EUR  10  million  into  the  scheme, 
which will support the integration of up to 3 700 migrants and refugees into the Finnish labour market by 
providing training and job-matching assistance. 

EU actions strengthen national, regional and local authorities and the civil society. Partnership has an 
important role to play at all stages of implementation of the European Structural and Investment Funds. The 
representatives of different levels of governance together with the social partners and the civil society have 
taken part in preparation, monitoring and implementation of the Partnership Agreement and the Operational 
Programmes. Advice, training and information sessions are organised regularly to all stakeholders.  

https://cohesiondata.ec.europa.eu/countries/FI 

16 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  FISCAL POLICIES 

The  fiscal  reforms  undertaken  in  recent  years 
reduced public expenditure, which remains one 
of  the  highest  in  the  EU.  The  crisis  and  the 
prolonged 
recession  pushed  up  social  and, 
consequently,  total  government  expenditure  in 
Finland  until  2014.  Between  2008  and  2014, 
general  government  expenditure  increased  more 
steeply in Finland than in the EU on average, from 
an  already  higher 
level  (see  Graph  3.1.1). 
However,  this  trend  has  since  been  reversed. 
Between  2014  and  2016,  it  fell  from  58.1 %  to 
56.0 % of GDP. This reduction was driven mainly 
by  lower  spending  on  health  (-1.1 %  of  GDP), 
economic  affairs  (-0.4 %  of  GDP)  and  education 
(-0.3 %  of  GDP).  The  total  public  spending 
remained  still  far  above  the  EU  average.  The 
difference  is  mainly  due  to  higher  spending  on 
social protection and general public services. Since 
2016,  Finland  has 
reduced  central 
through  appropriation 
government  expenditure 
cuts  and  lower  social  transfers.  The  public  wage 
bill has come down gradually over time and more 
recently  also  due 
the 
Competitiveness  Pact  (wage  freeze  in  2017  and  a 
temporary  reduction  in  annual  holiday  bonuses). 
This trend, however, may level-off or even reverse 
in  the  years  ahead  as  wage  growth  pressures  are 
increasing amid favourable cyclical conditions. 

the  measures 

further 

in 

to 

The  favourable  economic  cycle  is  helping  the 
government further consolidate public finances. 
Revenue  from  taxes  is  expected  to  increase  in 
2018-2019  on  the  back  of  growing  production, 
employment  and  wage  rises,  while  expenditure 
growth  is  projected  to  remain  moderate.  The 
government headline balance is forecast to slightly 
deteriorate from -0.7 % of GDP in 2017 to -0.8 % 
of GDP in 2018 due to some temporary factors (8), 
but  to  improve  markedly  to  -0.2 %  of  GDP  in 
2019. Finland’s gross debt-to-GDP ratio increased 
from 40 % in 2005 to 63.6 % in 2015. However, it 
has started to decrease since. The public debt ratio 
reached  61.3 %  in  2017  and  is  expected  to  have 

(8)  The end of one-off revenues from corporate taxes in 2017, 
the  tax  refunds  and  changes  in  the  system  of  value  added 
tax levies on imports. 

fallen  below  60 % 
downward trend thereafter. 

in  2018,  continuing 

the 

Graph 3.1.1:  General government expenditure as a share 

of GDP, broken down by function, Finland and 
the EU 

(1) The classes of the functions of government (COFOG) are 
1 General public services, 2 Defence, 3 Public order and 
safety, 4 Economic affairs, 5 Environment protection, 6 
Housing and community amenities, 7 Health, 8 Recreation, 
culture and religion, 9 Education and 10 Social protection.  
(2) Share of GDP on the right-hand axis 
Source: European Commission 

Taxation 

Finland's  tax  structure  is  characterised  by  a 
high  overall  tax  burden  skewed  to  labour.  In 
2017, the total tax burden (43.3 % of GDP) and the 
level of personal income taxation (12.6 % of GDP) 
were  among  the  highest  in  the  EU  (European 
Commission, 2019).  Revenues from capital taxes, 
including recurrent immovable property taxes, are 
below the EU average (7.5 % vs. 8.6 % of GDP), 
while revenues from consumption taxes (14.2 % of 
GDP)  and  environmental  taxes  (3.0  %  of  GDP) 
exceed the EU average. Changes to the tax system 
that have led to a decrease in the base for personal 
income  taxation  and  economic  growth  might 
contribute to a reduction in the total tax burden. 

Finland  has  created  an  Income  Register  to 
improve  access  to  real-time  individual  income 
data  for  authorities  in  order  to  improve  tax 
compliance  and  prevent  the  development  of  a 
shadow  economy.  The  Income  Register  is  a 

17 

0%10%20%30%40%50%60%70%0%10%20%30%40%50%60%70%80%90%100%081416081416FinlandEU28COFOG10COFOG 9COFOG 8COFOG 7COFOG 6COFOG 5COFOG 4COFOG 3COFOG 2COFOG 1% of GDP 
 
                                                           
 
 
3.1. Public finances and taxation 

instance,  environmental  taxes  are  not  indexed, 
which can lead to a gradual reduction in revenues 
as  share  of  GDP  over  time.  Reduced  energy  tax 
rates or refunds are in place for fossil fuels used in 
transport, 
flights,  mobile  machinery, 
agriculture,  energy  intensive  enterprises,  heating, 
etc.  These  exemptions 
to 
for 
increase  energy  efficiency 
Economic Cooperation and Development, 2018a). 

incentives 
(Organisation 

leisure 

reduce 

Graph 3.1.2:  Environmental tax revenues as share of GDP 

2016, in % 

the  Social 

includes 
national  electronic  database,  which 
comprehensive 
salary,  pension  and  benefit 
information  at  individual  level.  The  obligation  to 
report  information  in  real  time  will  apply  to  all 
employers as of 2019 and to all payers of benefits 
as  of  2020.  The  Income  Register  will  be  used  by 
many public and private institutions, including the 
Insurance 
Tax  Administration, 
Institution  of  Finland, 
the  Unemployment 
Insurance Fund as well as earnings-related pension 
providers and the Finnish Centre for Pensions. The 
number  of  parties  using  the  information  will 
the  Ministry  of 
including 
increase 
Economic  Affairs  and  Employment  agencies, 
Statistics  Finland,  the  Education  Fund,  non-life 
insurance  providers,  unemployment  funds  and 
occupational safety and health authorities. Another 
key  function  of  the  Income  Register  will  be  to 
prevent  the  growth  of  a  shadow  economy.  It  will 
make it possible to detect omissions in reports very 
soon  after  payment.  Moreover,  the  information  in 
each  report  will  be  accessible  to  all  entitled  users 
of the Income Register data. 

in  2020, 

Real estate taxation reform has been postponed. 
Revenues  from  the  recurrent  immovable  property 
taxes,  considered  as  one  of  the  least  growth-
distortive  taxes,  account  for  only  0.8 %  of  GDP, 
well below the EU average of 1.6 % of GDP. Both 
land  and  buildings  are  subject  to  a  recurrent 
property  tax.  While  building  values  are  updated 
yearly  according  to  a  construction  index,  taxable 
property values are generally below market values 
and  have  been  found  to  move  further  away  from 
them.  In  accordance  with  a  long-term  project  by 
the  Ministry  of  Finance,  there  was  a  plan  for  a 
two-step  reform  of  real  estate  taxation  starting  in 
2019.  Based  on  the  consultation  feedback,  the 
reform has been postponed until after the elections 
in  April  2019.    It  is  to  be  carried out in  one  step, 
whereby the increase in tax values and decrease in 
tax  rates  would  be  introduced  at  the  same  time. 
This  is  set  to  be  implemented  in  2022  at  the 
earliest. 

Source: European Commission 

An increase in the taxation of heating fuels has 
been  approved  as  one  of  the  actions  under  the 
government’s medium-term climate policy plan. 
It  aims  at  achieving  the  2030  emissions  reduction 
target.  The  relevant  amendments  came  into  force 
on 1 January 2019. Despite this, energy taxation is 
not fully linked to CO2 emissions. As noted in the 
International Energy Agency 2018 Finland review 
report,  the  Finnish  taxation  designed  to  favour 
fully  consistent  with 
domestic  peat 
decarbonisation  objectives  (International  Energy 
Agency, 2018).  

is  not 

In 

taxes. 

Further  revenue  could  be  raised  by  reforming 
environment-related 
Finland, 
environmental taxes accounted for 3.11 % of GDP 
in  2016  (EU  average:  2.44 %)  (see  Graph  3.1.2), 
and energy taxes for 2.11 % of GDP against an EU 
the  design  of 
average  of  1.88 %.  However, 
environmental 
to 
taxes  could  be 
encourage  more  efficient  use  of  resources.  For 

improved 

While progress has been made on reducing the 
petrol-diesel  price  differential  since  2005,  the 
gap  remains  sizeable.  In 2016,  there  was a  32 % 
gap  between  petrol  and  diesel  tax  rates,  while  in 
2005 it amounted to 84 % (European Environment 
Agency,  2017).  Excise  tax  rates  levied  on  petrol 
and  diesel  in  2016  remained  broadly  constant  in 
(European 
comparison  with 

in  2015 

those 

18 

0,00,51,01,52,02,53,03,54,0LUSKIEESDELTCZBESEFRROATUKEUPTPLHUBGMTCYEEFINLITHRLVELSIDK 
 
 
3.1. Public finances and taxation 

the 

and 

levels 

risk  assessment  also 

there  are  no  fiscal  or  competitiveness-financial 
risks  to  sustainability  of  public  finances (10).  The 
medium-term 
improved 
compared to last year on the back of the estimated 
lower  public  debt 
fiscal 
sustainability gap indicator S1 pointing to low risk 
(11).  In  particular,  with  a  value  of  -0.1 percentage 
point  of  GDP,  the  S1  indicator  implies  that  no 
adjustment  is  necessary  in  the  structural  primary 
balance  over  2021-2025. In 
term, 
notwithstanding  the  low  debt  burden,  the  fiscal 
sustainability  gap  indicator  S2  (12)  points  to 
medium  risks.  The  S2  indicator   is  estimated  at 
2.7 percentage  points  of  GDP,  based  on  the 
slightly  unfavourable  initial  budgetary  position 
(0.7 percentage  point  of  GDP)  and  the  projected 
increase  of  ageing  costs  (2.0 percentage  points  of 
GDP).  The  latter  are  driven  in  particular  by  the 
projected  increase  in  long-term  care  expenditure 
(1.6 percentage points of GDP). 

long 

the 

The  regional  government,  health  and  social 
services reform 

to 

rationalise 

reform  aims 

is 
A  reform  of  the  regional  government 
expected to be adopted by the general elections 
in April 2019 and to enter into force from early 
2021.  The 
the 
organisation  of  public  administration  at  the  state, 
regional  and  municipal  levels.  It  envisages  the 
transfer  of  some  functions  into  18  counties,  new 
administrative  entities.  The  responsibilities  of  the 
counties will be based on a clear division of duties 
between the local government, the county and the 
central  government.  Counties  will  be  responsible 
for  healthcare  and  social  welfare,  rescue  services, 
environment  protection,  regional  development, 

(10)  Short-term  sustainability 

fiscal 
sustainability gap indicator S0 (See European Commission, 
2018c). 

is  assessed  by 

the 

(11)  The  medium-term  fiscal  sustainability  gap  indicator  S1 
shows  the  additional  adjustment  required  in  terms  of 
improvement in the government structural primary balance 
over  5  years  (starting  from  2021)  to  reach  a  60 %  public 
debt-to-GDP  ratio  by  2033,  including  financing  for  future 
additional expenditure arising from population ageing. See 
European Commission, 2018c for details. 

(12)  The long-term fiscal sustainability gap indicator S2 shows 
the upfront fiscal adjustment to the current primary balance 
(in  structural  terms)  required  to  stabilise  the  debt-to-GDP 
ratio over the infinite horizon, including financing for any 
additional  expenditure  arising  from  an  ageing  population.   
S2  values  below  2  point  to  low  risks,  from  2  to  6  to 
medium  risks  and  above  6  to  high  risks.  See  European 
Commission, 2018c for details. 

Commission,  2018a).  Diesel  cars  are  a  major 
source of nitrogen oxide emissions. These need to 
be reduced to comply with the applicable national 
emission ceilings — especially in Helsinki. 

Fiscal framework 

is 

unbiased 

independent 

forecast  underpinning 

Finland is the only euro area country where the 
macroeconomic 
the 
budgetary planning is prepared by the Ministry 
of  Finance.  The  management  of  the  Economics 
Department  and  the  Budget  Department  of  the 
the 
Ministry  of  Finance  are  separated  and 
Economics  Department 
its 
in 
forecasting activities. Questions about the realistic 
and 
the  Ministry’s 
macroeconomic projections, that were raised in the 
2017 stability programme (European Commission, 
2018b),  have  not  been  present 
last 
the 
the  particular 
surveillance  cycle.  However, 
forecasting 
for  macroeconomic 
arrangement 
underpinning  the  budgetary  planning  warrants 
regular  surveillance  to  ensure  that  the  separation 
and  independence  of  both  functions  within  one 
institution are preserved. 

nature 

of 

in 

3.1.2.  DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

Public  debt  falls  over  the  forecast  horizon.  On 
the basis of the Commission 2018 autumn forecast 
and  the  commonly  agreed  assumptions  on  debt 
sustainability  analysis (9),  the  public  debt  ratio  is 
projected  to  decline  to  about  54.5 %  of  GDP 
favourable 
supported  by 
around  2026, 
contribution  of 
the 
the  snowball  effect  and 
structural  primary  balance.    Subsequently,  it  is 
projected to start increasing in 2028, inching up to 
55.1 % of GDP in 2029 (see Annex B). If the costs 
of ageing (pensions, long-term care and healthcare 
expenditure)  were  left  out of the  debt  projections, 
the  debt  ratio  would  gradually  decline  to  about 
45 % of GDP in the same period. 

a 

Sustainability  risks  of  public  finances  have 
decreased  for  the  medium  term,  although 
long-term  challenges  remain.  In  the  short  term, 

(9)  A  mechanical  projection  based  on  the  current  primary 
balance  and  assumptions  on  nominal  growth  and  interest 
rates.  Subsequently  an  equilibrium  debt 
level  and 
equilibrium interest services can be calculated. 

19 

 
                                                           
                                                           
3.1. Public finances and taxation 

the  authorities,  particularly 

However,  the  recentralisation  will  also  pose  new 
challenges  for 
in 
relation  to  the  additional  investments  needed  to 
implement  the  reform  and  the  planned  public 
financing  of  private  healthcare  services,  currently 
covered mostly by out-of-pocket payments. 

The opening of the healthcare sector will grant 
patients  freedom  of  choice  between  public  and 
private  healthcare  providers.  This  could  be  a 
positive  development  since  the  Finnish  system  is 
currently  very  restrictive.  It  could  reduce  waiting 
times  and  thus  improve  access  to  healthcare 
services. At the same time, there is a risk that the 
type  of  patients  that  currently  have  most  access 
problems such as pensioners, the unemployed and 
people  living  in  rural  areas  will  remain  relatively 
expensive  to  treat.  This  could  lead  to  cherry 
picking of patients by the private providers and put 
the  burden  of  the  economically  most  difficult 
patients onto public healthcare. 

promotion  of  business  as  well  as  promoting  the 
regional identity and culture. 

General  spending  on  healthcare  in  Finland  is 
close to the EU average while spending on long-
term  care  is  relatively  high  and  bound  to 
increase.  With  9.2 %  of  GDP  expenditure  on 
healthcare in 2017, Finland remains just below the 
EU average while per capita expenditure is slightly 
above the EU average. The financing of healthcare 
consists  mainly  of  government  schemes:    61 % 
compared to 36 % of the EU average (Organisation 
for  Economic  Cooperation  and  Development, 
2018b).  The  level  of  out-of-pocket  payments  is 
higher 
the  EU  average  and  has  been 
increasing  in  the  last  three  years.  Expenditure  on 
long-term care (usually referred to as social care in 
Finland) is, at 2.2 % of GDP, one of the highest in 
EU.  Health  and 
is 
expected  to  grow  in  the  coming  years  due  to  the 
population aging. 

long-term  care  spending 

than 

The  reform  will  have  two  major  consequences 
for  the  health  sector.  Firstly,  it  envisages  a 
transfer  of  healthcare  responsibilities  from  more 
than 300 municipalities  to  the  counties.  Secondly, 
the  health  sector  will  open  up  to  private  service 
providers.  The  publicly-funded  healthcare  will  be 
provided to patients under the same conditions by 
a public or private provider of their choice. 

Competition  between  service  providers  and 
public  management  at  a  more  central  level  are 
expected  to  lead  to  cost  savings  and  better 
access.  Whereas  by  EU  standards  access  to 
healthcare in Finland is good, waiting time is still 
suboptimal  for  those  patients  who  do  not  benefit 
from an employer-provided voluntary occupational 
sickness  care.  The  centralisation  is  expected  to 
enable  better  management  of  the  system  and  the 
opening  to  private  providers  should  yield  some 
efficiency  gains  thanks  to  increased  competition. 
The  risk  pooling  of  the  population  and  the  access 
to  relatively  rare  specialists  are  likely  to  improve 
in the counties. The government has quantified the 
savings from the reform at EUR 3 billion by 2031. 
The  expected  ratio  of  increase  in  expenditure  is 
reduced  from  2.4 %  to  0.9 %  over  the  10  years 
after  the  reform  (see  also  European  Commission, 
2018b).  The  main  factor  for  enhancing  efficiency 
will be the ability of the Ministry of Social Affairs 
and  Health 
the 
the  18  healthcare  entities. 
performance  of 

to  monitor  and  manage 

20 

 
3.2.  FINANCIAL SECTOR 

3.2.1.  BANKING SECTOR 

The  banking  system  is  resilient  but  structural 
vulnerabilities persist. Finland’s banking sector is 
concentrated,  with  the  top  three  banks  (two  pan-
Nordic banks and a domestic cooperative banking 
group)  occupying  over  70 %  of  the  market  across 
the  move  of 
all  main  segments.  Following 
Nordea’s headquarters from Stockholm to Helsinki 
in October 2018, Finland’s banking sector became 
one of the largest in Europe when compared to the 
size  of  the  economy,  with balance  sheet  size  over 
four  times  the  country’s  GDP.  The  general  risk 
resilience  of  the  banking  system  as  a  whole 
remains strong relative to the top three risks faced 
by  local  lenders:  the  credit  risk  strongly  linked  to 
high  households’  indebtedness,  the  liquidity  risk 
associated with the dependence on market funding 
and  the  exposure  to  potential  disruptions  in  other 
Nordic economies and their financial systems.  

The  banks  are  well  capitalised.  The  Common 
Equity Tier 1 ratio for the sector stood at 20 % at 
the  end  of  Q1 2018,  while  the  total  capital  ratio 
stood  at  22.5 %,  well  above  EU  averages.  At 
1.3 %,  the  non-performing  loans  ratio  of  the 
banking  sector  remained  one  of  the  lowest  in 
Europe.  Nevertheless, 
the 
banking sector from 2.5 times to over 4 times the 
GDP  has  increased  the  already  high  structural 
vulnerabilities  of  the  Finnish  banking  system  and 
may  put  pressure  on  the  sovereign  in  case  of  a 
major crisis.  

the  expansion  of 

loan-to-deposit 

High  reliance  of  banks  on wholesale  funding  is 
mitigated  by  the  increasing  use  of  long-term 
debt.  The  system-wide 
ratio 
remains  high  at  142.8 %,  much  higher  than  the 
euro area average. Deposits remain a popular way 
of  saving  money,  but  the  net  saving  rate  of  Finns 
remains  negative.  This  requires  Finnish  banks  to 
rely  on  confidence-sensitive  market  funding  to  a 
certain extent. Even though access to market-based 
funding  continues  to  be  relatively  easy  and  the 
price 
institutions’ 
exposure  to  changes  in  investor  risk  sentiment  is 
one of the long-lasting structural vulnerabilities of 
the  Finnish  banking  sector.  Looking  at  the  credit 
institutions’ 
funding 
represents  overall  55 %  of  the  funding  mix  with 
8 %  of  the  funding  being  short-term.  Finnish 
lenders’  increased  usage  of  long-term  covered 
bond  and  the  pool  of  liquidity  reserves  largely 

the  wholesale 

favourable, 

the  credit 

funding, 

is 

mitigate  the  refinancing  risks  associated  with 
market  funding.  Extending  funding  maturities 
through 
the 
interconnectedness  of  credit  institutions  and  their 
exposure  to  disruptions  on  the  Nordic  housing 
markets.  

increases 

covered 

bonds 

low 

Finland’s  banks  have  a  strong  track  record  of 
being  profitable.  The  risk  resilience  of  Finnish 
lenders is boosted by the relatively strong capacity 
to  generate  earnings.  Over  the  past  years,  the 
profitability ratios of Finnish banks have remained 
at good levels, generally much higher than those of 
their  European  peers.  Profit  margins  have  been 
supported  by  business  diversification  (especially 
into  asset  management), 
levels  of  non-
performing  assets  and  impairment  losses,  and 
better  cost-efficiency  of  Finland’s  lenders  than 
elsewhere  in  the  EU.  However,  net  profit  figures 
have been consistently declining over the last three 
years.  Profitability  is  reduced  by  the  low  interest 
rates,  increasingly  tighter  interbank  competition 
and  growing  competition  in  payment  services.  In 
addition,  the  financial  sector  profitability  and 
increasingly  reliant  on 
capital  adequacy  are 
developments  in  the  residential  and  commercial 
real  estate  markets.  The  sector  has  also  invested 
heavily  in  further  modernisation  of  information 
technology.  Going  forward,  in  case  the  low-
interest environment persists,  the banking sector’s 
earnings generation capacity may be at risk.  

Nordea’s relocation implies a heavier workload 
and  increased  responsibilities  for  the  Finnish 
Financial  Supervisory  Authority.  Nordea’s 
balance sheet is equivalent to 2.6 times the Finnish 
GDP,  which  makes  it  the  largest  bank  in  the 
banking  union  in  comparison  with  the  size  of  its 
home country’s economy.  The relocation of such 
a large financial institution alters in many ways the 
structure  of  the  entire  banking  sector  and  the 
systemic  risks  at  play.  Finland’s  participation  in 
the  European  Banking  Union  and  the  many 
regulatory  reforms  implemented  over  the  past 
years  moderate  these  risks.  Through  its  move  to 
Helsinki,  Nordea  has  also  moved  under  the  direct 
supervision  of 
the  European  Central  Bank. 
Nonetheless,  as  in  other  jurisdictions,  most  of  the 
supervisory  work  falls  on  the  local  financial 
supervision.  This  means  that  the  move  has  also 
major  implications  for  both  human  and  financial 
resources  of  the  Finnish  financial  watchdog  that 
has  already  recruited  30  new  staff  members. 

21 

 
 
3.2. Financial sector 

companies  were  (i)  credit  lines,  (ii)  leasing  and 
(iii)  bank  loans  (relevant  for  respectively  65 %, 
65 %  and  61 %  of  small  and  medium-sized 
enterprises in Finland). While bank loans appear a 
priori less attractive than other forms of financing 
(crowdfunding,  peer-to-peer  lending  or  business 
angels’ investment; European Central Bank, 2017), 
easy access to it is the key. 15 % of Finnish small 
and  medium-sized  enterprises  did  not  manage  to 
get  the  full  bank  loan  they  had  asked  for  during 
2018 (EU average: 18 %). A number of initiatives 
taken  in  recent  years  have  improved  small  and 
finance, 
medium-sized  enterprises’  access 
including  a  growth  funding  programme,  junior 
loans and the investment programme for industrial 
renewal.  

to 

Graph 3.2.1:  Interest burden of households and non-

financial corporations 

Source: European Commission 

3.2.3.  HOUSING MARKET 

House  prices  in  real  terms  remained  broadly 
stable.  In  both  2017  and  2018,  prices  increased 
modestly in nominal terms, fluctuating around the 
inflation  rate.  The  valuation  gap  closed  in  2017 
(see Graph 3.2.2). Overall, there are no signs of a 
price overvaluation at national level.  

Large  regional  price  disparities  are  a  constant 
feature  of  the  Finnish  housing  market.  Most  of 
the housing demand is concentrated in the Greater 
Helsinki  area  and  other  growth  centres,  where 
most of the new jobs are to be found. The average 

Furthermore,  the  Finnish  Parliament  approved  in 
November  2017  an  amendment  to  the  Credit 
Institutions  Act  to  include  a  systemic  risk  buffer. 
This allows the Board of the Financial Supervisory 
Authority (from 2018) to enforce additional capital 
requirements  of  up  to  5 %  of  Tier  1  capital  on 
credit  institutions  and  investment  firms  based  on 
the structural vulnerability of the financial system. 
The  authorities  are  currently  well  equipped  to 
manage  cyclical  and  structural  systemic  risks, 
staying  focused  on  keeping  the  banking  system 
well 
households’ 
indebtedness. 

capitalised 

curbing 

and 

3.2.2.  ACCESS TO FINANCE 

Lending  has  continued  to  increase  in  Finland. 
By June 2018, loans to firms had grown by 6.7 % 
compared to June 2017, while loans to households 
had  increased  by  4.3 %.  Low  interest  rates,  solid 
(albeit  declining)  consumer  confidence  and  a 
booming  construction  sector  were  the  driving 
forces  behind  the  household  demand  for  loans. 
Due  to  the  increase  in  GDP,  the  household  debt 
expressed  in  terms  of  GDP  has  changed  only 
marginally,  but  the  underlying  trend  of  an  ever-
rising  stock  of  household 
indebtedness  has 
continued.  

Due  to  the  low  interest  rates,  most  businesses 
and  retail clients  can  easily afford  bank  credit. 
The  interest  burden  for  households  is  lower  in 
Finland than in the euro area, but higher for firms 
(see Graph 3.2.1). Most of the credit stock is taken 
at  variable  rates,  with  a  tendency  to  further 
increase  (in  2017,  97.3 %  of  new  mortgages  had 
variable  rates).  This  makes  both  households  and 
firms  vulnerable  to  potential  rapid  changes  in  the 
monetary policy.  

Access to finance is easier when compared with 
most other EU countries. The results of the 2018 
survey  on  access 
to  finance  of  enterprises 
(European Commission, 2018) show that only 4 % 
of  the  surveyed  Finnish  small  and  medium-sized 
enterprises  indicated  access  to  finance  as  their 
most  important  concern,  compared  with  7 %  for 
the EU. Large firms are able to obtain financing in 
financial  markets,  whereas  small  and  medium-
sized  enterprises  use  banks  as  the  main  source  of 
funding.  In  2018,  the  three  most  relevant  sources 
small  and  medium-sized 
of 

financing 

for 

22 

024681012040506070809101112131415161718% of value added and GDIInterest payments / gross disposable income, Households,FinlandInterest payments / gross disposable income, Households,EA19Interest payments / value added, Non-financialCorporations, FinlandInterest payments / value added, Non-FinancialCorporations, EA19 
 
3.2. Financial sector 

is  unlikely  that  the  demand  for  housing  starts  to 
fall  markedly,  in  particular  in  the  prospering 
regions. 

Graph 3.2.3:  Residential construction, % GDP 

Source: European Commission 

3.2.4.  HOUSEHOLD DEBT 

is  high.  Household 

At  67.2 %  of  GDP  in  2017,  the  household  debt 
level 
indebtedness  has 
increased  steadily  over  the  last  two  decades, 
although  it remains below Finland’s Nordic peers. 
In 2017, it increased by 0.2 percentage points only. 
The  relatively  low  increase  can  be  attributed  to  a 
higher  growth  of  GDP.  In  terms  of  debt-to-gross 
disposable income ratio, household debt increased 
by 2.1 percentage points to 116.0 %. As the value 
of  households’  assets 
the  debt-to-
indicator  decreased  by  0.2 
financial  assets 
percentage point to 46.1 %.  

increased, 

started 

Quarterly indicators for Q2-2018 show that the 
to  marginally 
debt-to-GDP  ratio 
decrease.  In  parallel,  the  household  savings  rate, 
while at historically low levels, started to increase 
marginally.  If  this  momentum  persists  in  the 
second  half  of  2018,  it  might  represent  a  turning 
point in the trend.  

The stock of mortgage loans continues to grow. 
At  the  end  of  July  2018,  the  stock  of  mortgage 
loans amounted to EUR 97.1 billion (equivalent to 
78 % of the households debt), reflecting an annual 
growth  rate  of  2.1 %  (see  Graph  3.2.4)  compared 

price  per  square  metre  in  2018  in  the  Greater 
Helsinki  area  was  hovering  above  EUR  3 600 
whereas in the rest of the country (Greater Helsinki 
area  excluded)  it  was  around  EUR  1 600.  Despite 
the  moderating  effect  of  a  large  supply  of  new 
housing  units  in  recent  years,  prices  have  been 
increasing  faster  than  income  in  growth  centres. 
Migration  from  the  countryside  to  urban  areas  is 
continuing,  which  is  clearly  having  an  impact  on 
prices  upwards  in  growth  centres  and  downwards 
in  rural  areas.  The  larger  the  price  gap  is,  the 
greater the barrier to labour mobility, especially for 
lower-skilled  workers  and  families  with  limited 
revenues. 

Graph 3.2.2:  Overvaluation gap with respect to 

price/income, price/rent and fundamental 
model valuation gap 

Source: European Commission 

rising 

incomes  underpinned 

It  seems  that  housing  construction  peaked  in 
2018. Residential construction expressed as a share 
of GDP (see Graph 3.2.3), after increasing rapidly 
in  2016-2017,  is  estimated  to  be  in  2018  on  a 
similar  level  as  in  years  2005-2007  (6.4-6.6 %). 
Strong housing demand, coupled with low interest 
rates  and 
the 
construction  sector  in  recent  years.  However,  the 
data  on  residential  building  permits  (in  square 
the 
metre  of  useful  floor  area)  shows 
construction  growth  is  levelling  off.  In  addition, 
reported 
the 
construction  sector  is  reaching  its  full  capacities. 
Due  to  the  many  projects  already  started,  the 
momentum  might  still  be  strong  enough  to  keep 
construction  level  in  2019  similar  to  2018.  Given 
the outlook of accommodative monetary policy, it 

labour  shortages 

indicate 

that 

that 

23 

-25-20-15-10-5051015209799010305070911131517% deviation of current pricesModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap01234567030405060708091011121314151617% GDPNordic peers (DK, SE)Finland 
 
 
3.2. Financial sector 

to  July  2017.  The  stock  of  loans  to  non-financial 
corporations  amounted 
to  EUR 83 billion,  of 
which  loans  to  housing  corporations  and  rental 
for  EUR 30.2 
housing  companies  accounted 
billion.  The  latter  segment  displays  the  strongest 
year-on-year growth rate of over 10 % in the same 
period  due  to  both  ongoing  new  construction  and 
renovation works. 

Graph 3.2.4:  Lending growth year-on-year 

non-deposit taking (and thus unregulated) lenders. 
In  view  of  that,  the  authorities  have  stepped  up 
work  on  a  comprehensive  Credit  Registry  that 
would  collect  both  positive  and  negative 
information  on  debtors  and  would  thus  provide  a 
full  picture  of 
the  creditworthiness  of  each 
borrower. Launched in 2019, the registry will take 
is  up  and  running. 
it 
a  few  years  before 
Meanwhile,  a  working  group  comprising  the 
authorities  and 
also  discusses 
stakeholders 
additional  steps  to  limit  the  ability  of  households 
to  take  on  further  debt,  in  particular  a  legislation 
aiming to cap the debt-to-income ratio. 

large  regional  disparities 

There  are 
in 
indebtedness.  The  disparities  grew  over  the  last 
strongly 
their  development 
decade  and 
correlated  with  house  price  developments. 
Indebtedness  increased  in  the  country  overall  but 
the highest increases were in growth centres (Bank 
of Finland, 2018).  

is 

The  authorities  have 
taken  pre-emptive 
macroprudential  measures  to  restrict  rising 
households’  indebtedness.  The  Finnish  Financial 
Supervisory  Authority  has  imposed  since  January 
2018  a  minimum  average  risk-weight  of  15 %  on 
all  residential  mortgages  and,  since  July  2018,  a 
mortgage  cap  at  85 %  of  the  fair  value  of  the 
collateral posted at the time of loan approval. The 
government 
tax 
deductibility  of  the  mortgage  interest  service. 
While  Finland  gradually  reduced  the  share  of 
interest eligible for tax deduction, it still amounted 
to 50 % in 2018. Mortgage tax relief creates a bias 
for higher household borrowing and can lead to an 
increase in macroeconomic risks.  

is  also  phasing  out 

the 

Source: European Central Bank 

Average  repayment  periods  are  increasing  and 
mortgages  are  taken  at  variable  rates.  Most  of 
the  new  loans  have  longer  average  repayment 
periods than the existing stock. For the new loans 
taken  in  July  2018,  the  average  repayment  period 
was  around  20  years,  with  60 %  of  loans  being 
between  20  and  26  years.  The  majority  of  the 
current  stock  of  loans  have  variable  interest  rates 
(usually linked to euribor) and 97 % of new loans 
have  variable 
total  debt 
includes  the  exposure  to  debt  contracted  by 
housing  corporations.  Some  households  may  rely 
on  financing 
in  housing 
their  equity  share 
corporations through unsecured high yielding non-
bank  loans,  which  creates  potential  risks.  Overall, 
the share of loans secured by real estate property in 
the  banks  aggregate  balance  sheet  increased  over 
the past three years from 35 % to 43 %. 

rates.  Households’ 

Consumer credit is rapidly expanding.  At a 5 % 
yearly  growth  rate  (in  September  2018  compared 
to  September  2017),  it  is  backed  by  growing 
private  consumption  and  the  popularity  of  small 

24 

-2024681012Total private Non-financial corporationsHouseholdsMortgage credity-o-y% ch. 
 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

particularly  high  in  non-tradable  services,  the 
public sector, industry and construction (see Graph 
3.3.2).  This  pushed  the  unemployment  rate  down 
to  7.4 %  in  the  third  quarter  of  2018,  close  to  its 
structural level of 7.0 % (14), compared to 8.5 % in 
the  third  quarter  of  2017.  The  trend  is  set  to 
continue. 

Graph 3.3.2:  Employment growth by sector 

3.3.1.  LABOUR MARKET 

Labour market and supply 

The  labour  market  has  started  to  reap  the 
benefits  of  the  recovery.  Employment  and 
activity rates are nearing pre-crisis levels. In 2017, 
the  employment  rate  (age  group  20-64)  increased 
by  almost  1  percentage  point  compared  to  the 
previous  year,  to  74.2  %  (see  Graph  3.3.1).  It 
continued  to  increase  in  2018  (to  76.3  %  in  the 
third  quarter  of  2018).  It  was  above  the  EU 
average (72.2 %) although still below the country’s 
Nordic  peers  (13).  The  activity  rate  has  also 
improved, 
in  2017.  These 
improvements  are  due  to  the  growing  labour 
demand  and  an  increase  in  the  employment  of 
older  workers.  The  labour  force  participation  rate 
in  the  age  group  55  to  64  has  been  constantly 
increasing,  from  54 %  in  2007  to  65 %  in  mid-
2018 (Eurostat, 2018a). 

reaching  80.7 % 

Graph 3.3.1:  Activity, employment and unemployment 

rates  (quarterly data) 

Source: European Commission 

In  a  context  of  increasing  labour  demand  and 
falling unemployment, there are signs of labour 
shortages.  With  the  expansionary  phase  of  the 
business  cycle,  the  upward  movement  along  the 
Beveridge  curve  (see  Graph  3.3.3),  which  depicts 
the  relationship  between  the  unemployment  rate 
and  the  vacancy  rate,  continued  in  the  second 
quarter  of  2018.  This  could  point  to  a  tightening 
labour  market  and  may  eventually  put  upward 
pressure  on  wages.  The  number  of  vacancies 
continued to increase in 2018 and the job vacancy 
rate  averaged  2.4 %  for  the  first  two  quarters  of 
2018. Out of the 109 600 vacancies in the first two 
quarters of 2018, 49 % were hard to fill compared 
to 39 % during the same period in 2017 (15). 

(14)  European  Commission  estimate  of  the  non-accelerating 

wage rate of unemployment for 2018. 

(15)  Hard to fill vacancies are defined as those that an employer 
has  had  difficulties  in  filling,  in  their  subjective  opinion 
(Statistics Finland, 2019). 

Source: European Commission 

Structural  unemployment  remains  relatively 
high  despite  continued  employment  growth 
across the main sectors of the Finnish economy. 
The  employment  growth  accelerated  in  2018  (up 
2.3  percentage  points  from  the  third  quarter  of 
2017  to  the  third  quarter  of  2018)  and  was 

(13)  Denmark: 76.9 %; Sweden: 81.8 %; Norway: 78.3 %. 

25 

0246810124550556065707580852000Q32001Q32002Q32003Q32004Q32005Q32006Q32007Q32008Q32009Q32010Q32011Q32012Q32013Q32014Q32015Q32016Q32017Q32018Q3% of labour force% of populationUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64-150-100-500501002000Q22001Q12001Q42002Q32003Q22004Q12004Q42005Q32006Q22007Q12007Q42008Q32009Q22010Q12010Q42011Q32012Q22013Q12013Q42014Q32015Q22016Q12016Q42017Q32018Q2thousandsAgricultureIndustryConstructionTradable servicesNon-tradable servicesPublic sectorTotal 
 
 
                                                           
 
                                                           
3.3. Labour market, education and social policies 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights  is  designed  as  a  compass  for  upward  convergence  towards  better 
working and living conditions in the European Union (1). It sets out twenty essential principles and rights in 
the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social 
protection and inclusion. 

low, 

Finland performs well on the indicators of the Social  Scoreboard supporting the European Pillar of 
Social Rights. Income inequalities are among the lowest in the EU. In 2017, the income of the richest 20 % 
was stable at 3.5 times that of the poorest 20 %, compared to the EU average of 5.1. The risk of poverty or 
social  exclusion  remains 
though  some 
differences  exist  across  regions.  The  share  of 
population  at  risk  of  poverty  or  social  exclusion 
fell to a 10 years low in 2017, to 15.7 % (17.4 % 
in  2007),  well  below  the  EU  average  of  22.5  %. 
The  income  transfer  system  performs  above  the 
inequality. 
EU  average 
However,  evidence  suggests  that  children  of  low 
skilled  parents  face a  high and  increasing  risk  of 
poverty or social exclusion (from 45 % in 2010 to 
63.1  %  in  2017,  EU  from  59.8  %  to  62.9  %). 
Finland  continues  to  have  a  generally  well 
performing  education  system,  even 
though 
education  outcomes  have  slightly  declined  and 
gaps  between  different  groups  have  increased. 
Early school leaving slightly increased to 8.2 % in 
2017. It is among the best performers in terms of 
digital  skills  with  76  %  of  the population  having 
basic or above basic digital skills (the average EU 
level  is  57  %).  Self-reported  unmet  needs  for 
medical care have slightly decreased but remains 
among  the  highest  in  the  EU  (3.6%  in  2017,  EU 
1.6%),  nearly  exclusively  due  to  long  waiting 
lists. 

in  reducing 

income 

The  integration  of  services  poses  challenges. 
The  range  of  services  for  active  support  to 
employment  is  appropriate  but  these  services  are 
dispersed  among  a  number  of  separate  providers 
and there is a lack of coordination to produce a seamless services' chain. The vulnerable claimants are often 
falling in between different programs and measures. 

The social impact bond for migrants helps migrants find a job. The social impact bond aims at training 
and employing at least 2 000 migrants between 2017 and 2019. Through integrated personalised measures, 
the  social  impact  bond  provides  fast-track  integration  training  and  employment  for  migrants  who  have 
participated in the first stage of integration measures including initial language training. One of the investors 
is the European Investment Fund with a bid of EUR 10 million.  

(1)  The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission.  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

artificial 
Digitalisation, 
and 
intelligence 
opportunities 
is 
estimated that 7 % of the workforce in Finland are 

automation 
create  new 
in  the 

labour  market.  It 

challenges 

and 

employed  in  jobs  with  a  high  risk  (over  70 %)  of 
being  automated  in  the  future  (Organisation  for 
Economic  Cooperation  and  Development,  2018c; 
Koski  and  Husso,  2018).  By  2030,  artificial 

26 

 
 
3.3. Labour market, education and social policies 

(respectively  47.5 %  and  53.2 %  in  2017)  are 
below the EU average (53.6 % v 55.6 %). 

Graph 3.3.4:  Activity rate by age and educational 

attainment in 2017 (20-64, %) 

linked 

indirectly 

intelligence alone could eliminate 15 % of current 
jobs (Koski and Husso, 2018). At the same time, it 
could  generate  a  similar  number  of  new  jobs 
to  automation 
directly  or 
(McKinsey, 2017). The changing working life due 
to  artificial  intelligence  and  automation  calls  for 
continuous training and reskilling of the workforce 
(Organisation  for  Economic  Cooperation  and 
Development, 2017). This could concern up to one 
million  people  in  the  Finnish  labour  market 
(Ministry  of  Economic  Affairs  and  Employment, 
2017). Employees report lack of time as one of the 
in  adult 
main 
learning (Prime Minister’s Office, 2018a). 

for  non-participation 

reasons 

Graph 3.3.3:  Beveridge curve 

Source: European Commission 

The  main  reason  for  the  inactivity  of  working 
age  men  is  disability  or  illness.  This  is  the  case 
especially for men in the age group of 35-54 years 
(see  Graph  3.3.5).  Prevalence  of  mental  health 
disorders  could  be  one  explanation  for  drivers  of 
inactivity  (Eurostat,  2018b).  The  number  of 
discouraged male workers has remained above EU 
average  since  2010,  although  the  share  thereof 
decreased  from  10.4 %  in  2016  to  9.5 %  in  2017.  
The  situation  is  different  for  women,  for  whom 
inactivity  is  mainly  due  to  caring  responsibilities 
and family or personal reasons (see Section 3.3.2). 
Based on estimates by Statistics Finland, there are 
approximately  600 000  people  with  disabilities  of 
whom 240 000 are receiving disability pension and 
roughly half are working.  Some of them would be 
able to work full-time with their educational level 
being  the  same  as  for  the  overall  population.  The 
government  has  recently  launched  projects  to 
increase 
the  working  ability  of  people  with 
disabilities  but  the  service  system  seems  not  to 
respond  fully  to  the  special  needs  of  these  people 
(Ministry  of  Social  Affairs  and  Health,  2018). 
People with disabilities, although willing to work, 
face obstacles in entering the labour market due to 
the 
lack  of  coordination  between  supporting 
services and a fragmented social security system. 

Youth unemployment has slightly decreased but 
remains  above  the  EU  average.  In  the  second 
quarter of 2018, youth unemployment was 17.5 % 
(EU average 15.1 %).  However, the rate of young 

Source: European Commission 

The  population  is  ageing  fast  and  the  labour 
force  is  shrinking.  The  share  of  the  working  age 
population  is  projected  to  shrink  from  63 %  in 
2016  to  58.3 %  by  2050  (European  Commission, 
2018e).  Increasing  the  labour  force  will  require 
providing 
the 
inactive  people  as  well  as 
unemployed  and 
including groups with only marginal labour market 
attachment such as non-EU nationals. 

activating 

skills, 

right 

the 

to 

low  compared 

the 
Activity  rates  are 
country’s  EU  Nordic  peers,  especially  for  the 
low skilled. Activity rates are lower than in other 
Nordic countries for all levels of education and age 
groups (see Graph 3.3.4). The share of low-skilled 
in  Finland. 
workers 
However,  their  activity  and  employment  rates 

low  (11.7 %) 

is  rather 

27 

​08q2​​​​​​​​​​​​​​​​​​​​​​​​​​​​18q2​0510152025305678910Labour Shortage Indicator (%)Unemployment rate (% of labour force)40455055606570758085909510020-2425-2930-3435-3940-4445-4950-5455-5960-64% activity rateDK lowFI lowSE lowFI mediumSE mediumDK mediumFI highSE highDK high 
 
 
 
3.3. Labour market, education and social policies 

20 % 

whom 

Economic Cooperation and Development, 2018d). 
The total foreign population in 2017 was 249 500, 
of 
were 
approximately 
Estonians (Statistics  Finland,  2018a).  Over  65 % 
of the foreign population lives in 10 largest cities, 
most  of  them  in  Helsinki  where  10 %  of  the 
population  are  migrants.  The  net  migration  is 
expected  to  remain  positive  in  the  coming  years 
with  an  increasing  number  of  people  moving  to 
Finland from non-EU countries. 

The employment gap of Finland’s foreign-born 
population  is  high.  Foreign-born  population  in 
Finland  has  lower  employment  rates  than  people 
born  in  the  country  (49.9 %  in  2017  compared  to 
EU  average  of  57.4 %),  particularly  for  foreign-
born women (36.1 %, compared to EU average of 
47.1 %). The employment gap is one of the largest 
in the EU, which may be due to the family benefit 
system.  It  could  also  affect  the  integration  of 
children  with  foreign-born  parents,  who  are 
struggling 
the  Finnish  school 
in 
system (Organisation  for  Economic  Cooperation 
and  Development,  2018e).  Several  integration 
policies  have  been  developed  in  response  to  the 
inflows of asylum seekers in 2015. The Ministry of 
Education  and  Culture  is  implementing  measures, 
such as funding educational institutions to improve 
immigrants’ educational services. 

thrive 

to 

contact 

and  workplace 

In the past few years, considerable efforts were 
made  to  update  the  integration  system.  It 
included efforts related to settlement, early  labour 
market 
diversity 
management. The social impact bond in particular 
aims to employ at least 2 000 migrants after a four 
to six months trial period. Full time employment is 
promoted  by  combining  individual  training  needs 
in  a  flexible  way.  Private 
with  work 
companies  and 
investors  have 
institutional 
invested  in  the  fund  that  is  implementing  the 
measures.  The  Ministry  of  Economic  Affairs  and 
Employment  will  pay  into  the  fund  according  to 
the  results  that  the  project  delivers.  The  project 
started in 2016 and runs until the end of 2019.  

trials 

Incentives  to  accept  work  and  activation 
measures 

The  government  has  put  more  emphasis  on 
activating  the  unemployed.  A  benefit  scheme 
with  financial  sanctions,  called  ‘active  model’, 
came  into  force  in  2018  (European  Commission, 

or 

aged 

15-24 

training 

people not in employment, education or training is 
lower  than  the  EU  average  (10.9 %  compared  to 
the EU average of 13.4 % for the age group 15-29 
in  2017).  The  Finnish  Youth  guarantee  scheme 
reached 66 % of young people not in employment, 
education 
in 
2017 (European  Commission,  2018f).  The  one-
stop guidance centres for young people were made 
permanent,  with  financial  support  secured  until 
2021. There are more than 50 one-stop-shops. The 
first  national  results  from  year  2016  were 
promising,  showing  that  more  than  13 000  people 
were  directed  to  services  or  measures  by  the 
guidance centres (Kohtaamo, 2018). The test phase 
and  the  extension  of  the  service  model  were  co-
financed by the European Social Fund. 

Graph 3.3.5:  Reasons for inactivity by age (men, 2016) 

Source: European Commission 

Graph 3.3.6:  Reason for inactivity by age (women, 2016) 

Source: European Commission 

While  the  share  of  the foreign-born population 
remains  small  by  international  standards,  its 
growth  has  been  among  the  fastest  in  member 
countries  of  the  Organisation  for  Economic 
Cooperation  and  Development.  In  1990,  the 
foreign-born  population  in  Finland  accounted  for 
only  1.0 %  of  the  population,  but  the  share 
increased  to  6.5 %  in  2016  (Organisation  for 

28 

0%10%20%30%40%50%60%70%80%90%100%15-2425-3435-4445-5455-64Disability or illnessCare responsabilitiesPersonal or family responsabilitiesEducation or trainingRetirementDiscouraged workersOther0%10%20%30%40%50%60%70%80%90%100%15-2425-3435-4445-5455-64Disability or illnessCare responsabilitiesPersonal or family responsabilitiesEducation or trainingRetirementDiscouraged workersOther 
 
 
 
3.3. Labour market, education and social policies 

unemployed  could  deteriorate  in  particular  from 
the  vicinity  point  of  view  (European  Commission 
2018g).  

3.3.2.  SOCIAL POLICIES 

than 

some 

though 

for  employees 

The risk of poverty or social exclusion remains 
low, 
regional  and  group 
differences  exist.  The  share  of  population  at  risk 
of poverty or social exclusion fell to a 10-year low 
in  2017.  At  15.7 %,  it  was  well  below  the  EU 
average of 22.5 %. Poverty rates of self-employed 
are  higher 
(European 
Commission,  2018h).  This  is  mainly  because  of 
their  lower  declared  incomes  and  lower  share  of 
membership  in  voluntary  insurances.  Western 
Finland  performed  worst  in  2017,  with  a  share  of 
population at risk of poverty or social exclusion at 
18.5 %,  while  Helsinki-Uusimaa  registered  the 
lowest  level  (11.8 %).  Children  of  low-skilled 
parents  face  a  high  risk  of  poverty  or  social 
exclusion  (63.1 %,  marginally higher  than  the  EU 
average  of  62.9 %).  Children  with  a  migrant 
background  face  a  significantly  higher  risk  of 
poverty  than  children  of  nationals,  with  a  20-
percentage points difference. As part of the Europe 
2020  strategy,  Finland  made  a  commitment  to 
reduce  the  number  of people  at  risk of poverty  or 
social  exclusion  by  150 000  by  the  year  2020. 
Although  statistics  show 
is 
currently short of reach by approximately 100 000, 
if Finland continues its 2016-2017 trend (reduction 
by 47 000), the goal remains achievable. 

target 

that 

this 

income 

Inequalities 

Income inequalities are among the lowest in the 
EU. In  2017,  the  income  of  the  richest  20 %  was 
stable  at  3.5  times  that  of  the  poorest  20 %, 
compared  to  an  EU  average  of  5.1.  The  tax-and-
benefit  system  performs  above  the  EU  average  in 
reducing 
in 
inequality. 
educational outcomes are low. The variation in the 
Programme  for  International  Student  Assessment 
2015 scores due to socio-economic background of 
parents  is  among  the  lowest  in  the  EU.  Women 
still  earn  on  average  some  16 %  less  than  their 
male  counterparts.  The  Finnish  Ombudsman  for 
Gender Equality considers that wage transparency 
could  help  prevent  discrimination  against  women 
lower-paid  workers  (Maarianvaara, 
and  other 
2018). 

It 

in 

that 

2018b). The aim was to increase conditionality by 
reducing  the  benefit  for  the  unemployed  of  the 
model.    In  June-July  2018,  158 000  unemployed 
their  unemployment  benefits 
faced  cuts 
(Yleisradio  Oy,  2018). 
the 
seems 
possibilities  for  the  unemployed  to  demonstrate 
sufficient  activity  are  limited  (16)  and  the  public 
sufficient 
employment  offices  cannot  offer 
the 
activation  services.  The  shortcomings 
system  may  drive 
to  seek 
compensation from social assistance, thus pushing 
them  deeper  into  the  benefits  system  rather  than 
towards  labour  market  inclusion.  New  rules  to 
activate the unemployed through more intense job 
application  and  reporting  to  the  employment 
services are being prepared. 

the  unemployed 

in 

unemployed 

its  Nordic 

A  multi-professional  working  culture  would 
allow  better  outreach  to  all  target  groups. 
Finland spends less on public employment services 
peers 
than 
per 
(International  Monetary  Fund,  2017).  It  will  be 
increasingly  difficult  to  reduce  and  prevent  long-
term unemployment and inactivity without a multi-
professional  approach  to  deal  with  also  non-work 
related  problems  (such  as  health  issues  and 
substance  abuse).  An  integrated  approach  exists 
for some target groups, but not for all. 

In 

the 

entrepreneurship, 
and 

business 
internationalisation 

The  public  employment  and  entrepreneurship 
services  will  be  integrated  into  public  growth 
services. 
regional 
the  context  of 
government, health and social services reform, the 
current resources of the public employment offices 
and  the  entrepreneur  service  centres  will  be 
transferred  to  the  counties  (some  2  600  person-
years).  The  growth  services  are  expected  to 
growth, 
promote 
transformation 
of 
companies, meeting at the same time the evolving 
needs of the labour market. The aim of this part of 
the  reform  is  to  offer  transparent,  customer-
oriented  and  more  efficient  services,  including 
multi-professional services and integrated services 
for those who are hard to employ. Pilot projects are 
ongoing  or  planned  to  test  the  reform  and  the 
cooperation  between  municipalities,  regions  and 
private  companies  on  how  to  provide  effective 
employment  services.  There  is  a  risk  that  the 
employment  services  especially  for  the  long-term 

(16)  Measures  funded  by  the  European  Social  Fund  will  be 
counted as demonstration of activity as from April 2019. 

29 

 
                                                           
3.3. Labour market, education and social policies 

An in-depth reform of the social benefits system 
is  yet  to  take  place.  Despite  actions  taken  in 
recent years, there is widespread consensus that the 
social  benefit  system  should  be  reformed.  An 
expert  group  will  make  suggestions  to  the  next 
government after the parliamentary elections. 

income  experiment 

is 
The  universal  basic 
expected  to  provide  some 
information  on 
possible  options  for  reform.  The  tested  reform 
simplifies  the  current  benefit  system  by  merging 
various  basic  security  benefits  paid  by  the  Social 
Insurance  Institution  (Kansanelakelaitos,  2019). 
Preliminary  results  were  presented  on  8  February 
2019.  Another  experiment  on  participative  social 
security  that  is  exploring  different  models  of 
inclusive  social  security  practices  started  in  five 
municipalities  in  2018  and  will  end  in  2019.  The 
aim  of  this  experiment  is  to  test  if  intensive 
counselling  and  more  targeted  labour  market 
services  could  bring  back  to  employment  those 
caught in unemployment traps. 

complemented 

A  reliance  on  home  care  is  a  hindrance  to 
female labour force participation. Long spells of 
home  care  allowance  weaken  caretakers’  — 
usually  women  — 
labour  market  position. 
However,  the  level  of  the  allowance  is  low  and 
assistance, 
often 
especially  if  there  is  no  other  income  in  the 
household. The long caretaking responsibilities for 
women  contribute  to  the  gender  employment  gap 
as  well  as  the  gender  pay  gap  (16 %).  The 
government  initiated  a  process  to  reform  family 
leave, but did not carry it through.  

social 

by 

the 

time, 

same 

The  long-term  care  system  is  delivered  at 
municipal level, which may limit its accessibility 
and funding. The cost of service provision varies 
considerably  between  populous  and  sparsely 
populated  areas.  At 
the 
municipalities  rely  on  informal  care  delivered  by 
family members, which may hinder labour market 
participation  of  the  (mostly  female)  informal 
carers.  Finland  figures  significantly  above  the  EU 
average  for  informal  homecare  provision  (8.9  % 
and  6.2  %  respectively  of  the  16  years  old 
population  and  over),  especially  with  regards  to 
less 
than  10  hours  of  weekly  care.  The 
municipalities  support  informal  care  by  different 
measures, including training and financial support. 
However,  there  are  challenges  in  coordinating  the 
services delivered in home environment. 

to 

to 

simplify 

struggles 

recognise 

systems  aiming 

Reform  of  social  assistance  administration  has 
not yet improved the service. The administration 
of the basic social assistance was transferred from 
municipalities to the Social Insurance Institution of 
Finland  in  2017.  The  reform  merged  varying 
municipal 
the 
application processes. However, the system is rigid 
individual 
and 
circumstances,  which  is important  in  reaching  out 
to  the  inactive.  Waiting  periods  are  long  and 
contacts  between  the  Social  Insurance  Institution 
and  the  municipal  social  assistance  offices  are 
difficult  due  to  different  information  technology 
systems. In certain regions, service provision in the 
Swedish  language  has  proven  problematic.  Food 
aid  is  not  part  of  the  official  social  security 
is  delivered  by  voluntary 
scheme,  but 
organisations  as  a  combination  of  food  donated 
and  purchased,  together  with  social  measures  to 
accompany  the  aid  recipients.  Despite  the  recent 
economic  growth,  the  demand  has  not  decreased 
proportionally and is not expected to decrease. 

it 

Inactivity traps and social benefits 

in 

‘bureaucratic 

Inactivity  and  unemployment  traps  remain 
high. Social assistance and the housing allowance 
as well as other benefits are phased out rapidly as 
income increases, which creates the risk that taking 
up  work  might  not  be  sufficiently  financially 
rewarding.  Furthermore,  adequacy  of  benefits  is 
very  high  (17)  but  their  rules  are  very  complex. 
Combined  with  administrative  practices,  this  can 
result 
traps’.  Uncertainty 
surrounding  the  level  of  benefits  and  the  time  to 
reinstate  them  reduces  the  attractiveness  of  short-
term  or  part-time  work.  The  real-income  register 
available  to  various  authorities  (see  section  3.1) 
the 
to  address  some  of 
has 
bureaucratic 
the 
reinstating 
related 
benefits.  From  1  April  2019,  the  uncertainty 
surrounding  the  level  of  benefits  will  be  partly 
alleviated  by  a  change 
regulations 
concerning the period when income from part-time 
or  short-time  employment  is  taken  into  account 
and has an effect in the amount of unemployment 
benefit change. 

the  potential 
traps 

the 

to 

in 

(17)  In  the  case  of  single-person  households,  the  level  of  the 
benefits was estimated at 75 % of the poverty threshold and 
58 %  of  the  income  of  a  low-wage  earner  (see  European 
Commission and Council of Ministers, 2018). 

30 

 
                                                           
3.3. Labour market, education and social policies 

The  participation  rate 
in  early  childhood 
education  has  improved.    Between  2007  and 
2016  it  grew  to  32.7 %  for  under  3-year-olds  and 
to 87.4 % for those 4 years and older. The share of 
the  former  is  at  EU  average  but  remains  below 
other Nordic countries, while the share of the latter 
remains  still  7.9  percentage  points  below  the  EU 
are 
average.  Slowly 
observed  in  education  outcomes  between  regions 
and  between  schools,  however,  the  causes  are  not 
yet fully understood.  

increasing  differences 

Recent  initiatives  aim  to  increase  the  quality 
and  fairness  of  education.  The  new  Act  on 
childcare (January 2018) is overhauling regulation, 
better  defines  qualification  of  staff  and  improves 
data  collection.  By  2030,  at  least  2  out  of  3  staff 
members  will  have  a  relevant  tertiary  degree 
instead  of  only  one  staff  member  right  now. 
Municipalities  have  currently  access  to  an  annual 
for 
total  grant  amount  of  EUR 12  million 
improving  childcare  education  and  ensuring  equal 
opportunities  for  all  in  basis  education.  The 
government  has  launched  a  set  of  initiatives  that 
are  promoting  new  approaches  to  strengthen  the 
quality and relevance of education, such as a new 
proposal on upper secondary education. 

The  government  is  providing  some  additional 
strategic  investment  in  education  that  is  partly 
counterbalancing  recent  structural  spending 
cuts.  Government  spending  on  education 
in 
Finland  is  well  above  the  EU  average  and  in  line 
with  spending  of  its  EU  Nordic  peers  (6.1 %  of 
GDP  in  2016  in  Finland,  6.6  %  in  Sweden  and 
6.9 % in Denmark, respectively; Eurostat, 2018c). 
However,  between  2010  and  2019  education 
in  Finland  were  cut  by  cumulative 
budgets 
EUR 2.2  billion  (Trade  Union  on  Education, 
2018).  An  important  part  of  the  financial  burden 
for primary and earlier education was shifted to the 
the  state  contribution  was 
municipalities  as 
reduced  from  50 %  to  25 %.  Furthermore,  the 
government  has  reserved  about  EUR 1  billion  for 
the initiatives to improve the quality of education. 
This  investment  is  positive  but  falls  short  of 
offsetting the imposed cuts in spending at all levels 
of  education,  and  particularly  in  higher  education 
and vocational education and training system. 

Tertiary  education  attainment  is  high,  but  not 
for  all  social  groups.  44.6 %  of  30-34  year-olds 
have  obtained  tertiary  education  in  2017,  2.7 

Equal access to social and healthcare services 

of 

than 

average 

the  EU 

The Finnish population enjoys a comparatively 
good  health  status.  Even  if  life  expectancy  has 
slightly  decreased  in  2016,  it  remains  0.5  year 
higher 
81 
years (Organisation for Economic Cooperation and 
Development, 2018b). Inequalities in health status, 
measured  by  the  gap  in  life  expectancy  between 
people  with  the  lowest  and  highest  education,  are 
smaller  in  Finland  than  in  the  EU.  Finland 
performs  well  in  health  promotion  and  disease 
prevention,  and  the  government  expects  that  the 
planned  regional  government,  health  and  social 
services  reform  (see  Section  3.1.)  will  lead  to 
efficiency  gains  and  reduced  waiting  times  for 
health services. 

3.3.3.  EDUCATION AND SKILLS 

The  education  system  performs  well,  but 
educational  outcomes  have  declined  and  gaps 
between  different  groups  have 
increased. 
International  tests  in  reading  carried  out  for  the 
Progress  in  International  Reading  Literacy  Study 
by the International Association for the Evaluation 
of  Educational  Achievement  confirmed 
the 
important performance gap between boys and girls 
(Leino  et  al.,  2017)  but  reading  skills  of  10  year-
olds  remain  strong  and  unchanged  compared  to 
2011.  The  Programme  for  International  Student 
Assessment  2015pointed  to  the  country’s  strong 
its 
position  on  basic 
performance  has  been  continuously  weakening 
(European Commission, 2018i).  

skills  even 

though 

leaving 

increased  slightly.  It 
Early  school 
amounted  to  8.2 %  in  2017  compared  to  the  EU 
average of 10.6 % with differences between young 
people  in  rural  areas  (10.1 %)  and  those  in  cities 
(7 %).  Foreign-born  pupils  drop  out  of  school 
almost  twice  as  often  as  pupils  born  in  Finland 
(15.2 %  compared  to  7.9 %)  and  the  gap  between 
these groups on baseline levels of proficiency in all 
main  domains  (literacy,  mathematics,  science)  is 
significant  (42 percentage  points  compared  to  the 
EU 
points)  
(Organisation  for  Economic  Cooperation  and 
Development,  2018f).  This  is  compounded  by  the 
worsening  performance  of  pupils  with  a  migrant 
background (European Commission 2018b).  

22 percentage 

average 

of 

31 

 
3.3. Labour market, education and social policies 

Undergoing  restructuring  and  budget  cuts 
the  quality  of  higher 
could  compromise 
education.  Higher  education  was  subject 
to 
cumulative  budget  cuts  of  EUR 850  million  in 
2011-2018.  This  led  to  staff  reductions  and 
deterioration  of  teaching  and  research  conditions 
that  have  caused  some  of  the  best  professors  and 
key  researchers  to  leave  the  country.  The  ‘Vision 
for higher education and research in Finland 2030’ 
aims to mobilise the higher education sector to find 
solutions  to  these  challenges.  It  targets  having 
50 % of  the 25  to 34-year-olds  to finish  at  least  a 
bachelor  degree,  improving  opportunities  for  life-
long 
learning  and  providing  some  additional 
resources  for  high  quality  research.  The  complex 
admissions  process  to  universities  could  explain 
why  Finnish  students  are  older  when  they  start 
studying,  with  22  years  as  the  median  age  (Prime 
Minister’s  Office,  2017).  Finland  has  introduced 
policy  measures  on  the  student  admission  process 
to promote early take up of tertiary studies, but the 
trend has not yet reversed. 

Graph 3.3.8:  Trends in tertiary attainment in Finland by 

country of origin and gender (30-34 year olds) 

Source: European Commission 

system 

training 

in  upper 

secondary  education 

A  comprehensive  reform  of  the  vocational 
is  being 
education  and 
implemented since early 2018. The proportion of 
students 
in 
vocational  education  and  training  remained  stable 
in 2016 at the level of 71.3 %, which is well above 
the  EU  average  of  49.3 %.  The  employment 
outcomes  of  vocational  education  and  training 
participants  in  2017  (at  76.9 %  of  the  recent 
graduates  from  vocational  education  (age  20-34) 
and training participants) are slightly above the EU 
average (76.6 %). The key elements of the reform 
are 
the  competence-based  and 
customer-oriented  approach,  to  offer  individual, 
for 
flexible  and  customer-oriented  pathways 
individuals  and  to  integrate  separate  funding 
apprenticeship, 
systems 

(institution-based, 

to  enhance 

less 

than 

percentage  points  less  than  in  2007.  The  gender 
imbalance  remains  large  and,  in  2017,  only  27 % 
of people not born in Finland had obtained tertiary 
in  other  Nordic 
education,  much 
countries.  Tertiary  attainment  is  the  highest  in 
Helsinki-Uusimaa  (52.5 %)  and  the  lowest  in 
northern  and  eastern  Finland  (38 %).  Cities  show 
the highest share of tertiary graduates with 55.3 % 
and  rural  areas  the  lowest  with  30.4 %.  Between 
2010  and  2017  the  share  of  graduates  in  cities 
hardly  changed  (+0.2  percentage  points)  but  it 
dropped  around  9  percentage  points  in  towns, 
suburbs and rural areas. 

Graph 3.3.7:  Participation in early childhood education and 

care participation for less than 3- years -olds 
and younger (above) and participation for 4-
year olds until school age (below) 

Source: European Commission 

32 

8082848688909294969813141516% of totalFinlandEUNordic peers1525354555657513141516% of totalFinlandEUNordic peers (DK, SE)202530354045501011121314151617% of populationForeign CountryTotal graduates35404550556008091011121314151617% of populationMalesFemalesTotal graduates 
 
 
3.3. Labour market, education and social policies 

together 

target  groups: 

the  approach  of 

Industry strategy in place. The Digital Skills and 
Jobs  Coalition  brings 
companies, 
education  providers,  social  partners  and  public 
authorities to act to reduce the digital skills gap for 
labour  force,  education, 
four 
information  and  communications 
technology 
professionals and citizens. A critical success factor 
the  Digitising  European 
of 
Industry  initiative  is  to  mobilise  all  stakeholders, 
notably  at  high  political  level  in  the  Member 
States,  around  meaningful  actions  that  meet  the 
needs  of  industry.  The  development  of  these 
national  initiatives  is  an  important  element  of the 
European  Platform  of  National  Initiatives  on 
Digitising  Industry  (European  Centre  for  the 
Development of Vocational Training, 2018). 

3.3.4.  INVESTMENT NEEDS 

Increased  investment  in  skills,  education  and 
training  and  social  inclusion  are  important  for 
improving  Finland’s  productivity  and  long-
term  inclusive  growth.  Skills  shortages  and 
mismatches  are  among  the  main  obstacles  to 
business  investment  and  to  reducing  structural 
unemployment, pointing at the need to invest more 
in  training  of  unused  and  under-used  labour 
potential  and  investing  in  matching  training  and 
anticipation  of  future  skills  needs.  Using  the  full 
labour potential also requires matching investment 
in  social  inclusion,  integration  of  different  public 
services  and  the  availability  of  long-term  care 
services,  paying  due  attention  to  geographical 
disparities in the availability of these services. 

to  develop  and 

vocational adult education and partly employment 
training) into one coherent funding system. It also 
aims 
increase  apprenticeship 
training  and  other  forms  of  work-based  and  life-
long  learning.  The  reform  introduces  individual 
study  plans 
learners.  A  successful 
implementation  of  the  reform  could  improve 
labour  market  matching  and  contribute  to  a  well-
qualified workforce, as well as to the diffusion and 
adoption of latest technologies. 

for  all 

improve.  Adult  participation 

The  highly  performing  adult  learning  systems 
in 
continue  to 
learning is at 27.4 % of the age group 25-64 of the 
total  adult  population,  the  second  highest  in  the 
EU.  Each  year,  between  3 000  and  5 000  adults 
take  part  in  basic  education.    New  provisions  on 
basic education for adults adopted in 2017 entered 
into force on 1 January 2018, with the aim to speed 
up the educational pathway to the basic education 
certificate.  A  personal  study  programme  is  drawn 
up  for  each  student  in  which  the  student’s  prior 
learning  is  identified  and  acknowledged.  The 
target  group  includes  those  17  years  of  age  and 
older,  lacking  basic  education.  Migrants  make  up 
more  than  95 %  of  the  target group.  The  personal 
study  programme  replaces  the  integration  training 
for  migrants.  The  new  legislation  gives  greater 
responsibility  to  training  institutions  to  provide 
language  and  vocational  training  to  facilitate  the 
integration  of  migrants  and  refugees.  Obligatory 
national  language  proficiency  tests  are  abolished. 
This  has  the  potential  to  facilitate  migrants’  entry 
to  vocational  education  and  training,  and  to  find 
employment. 

Digital skills 

Digital  skills  are  one  of  Finland’s  strongest 
competitive  advantages.  Despite  Finland’s  high 
ranking  in  terms  of  digital  skills,  almost  60 %  of 
Finnish  companies  reported  hard-to-fill  vacancies 
for jobs requiring information and communications 
technology specialist skills. Nevertheless, in terms 
of  human  capital,  76 %  of  the  population  have 
basic  or  above  basic  digital  skills,  way  above  the 
EU  average  (57 %).  However,  companies 
in 
specific niches of information and communications 
technology report difficulties in finding the skilled 
workforce. 

Finland  does  not  have  a  national  Digital  Skills 
and Jobs Coalition (DSJC), neither a Digitising 

33 

 
3.4. COMPETITIVENESS REFORMS AND INVESTMENT  

3.4.1.  PRODUCTIVITY AND INVESTMENT TRENDS 

Labour  productivity  is  recovering,  but  is  still 
below  its  pre-crisis  peak.  Labour  productivity 
declined in Finland in 2008-2015, while in the EU 
and the euro area on average it slightly increased. 
The  decline  affected  all  sectors,  in  particular 
manufacturing,  because  of  the  setback  of  the 
electronics  sector.  In  2016,  labour  productivity 
started  recovering  and  increased  across  the  board. 
In  2018,  as 
labour 
productivity  growth  slowed  down  to  0.6 %,  far 
below its pre-crisis and 2017 levels (1.6 %). 

recruitment  accelerated, 

Graph 3.4.1:  Total factor productivity (total economy) 

Source: European Commission 

Total  factor  productivity  is  also  still  below  its 
2007  level  but  is  growing  fast.  Total  factor 
productivity gains in Finland had been negative in 
2008-2015, also reflecting the shift from high tech 
goods  towards  medium  tech  goods.  As  of  2016, 
total  factor productivity  started  to grow,  at  a pace 
that  eventually  overtook  Finland’s  Nordic  peers 
(see  Graph  3.4.1).  Yet,  in  2018,  Finland’s  total 
factor productivity  is still expected  to be  far  from 
the  peak 
(European 
Commission,  2018b).  This  may  reflect  a  still 
in  equipment  and 
relatively 
intellectual  property  products  (see  also  Section  1 
and the section below under ‘Investment needs’). 

investment 

in  2007 

reached 

low 

it 

Overall, investment in Finland remained above 
the EU average, but was predominantly devoted 
to construction (see Box 3.4.1.). At around 22 % 
latest  four  quarters,  overall 
of  GDP 

the 

in 

investment remained among the highest in the EU, 
and was slightly on the rise. However, construction 
accounted  for  59.4 %  of  overall  investment,  an 
increase by 3 percentage points in comparison with 
a year ago. At 13.3 % of GDP, it was the highest in 
the EU, and was still rising. Housing construction, 
one  of 
least  productive  categories  of 
investment  accounted  for  almost  50 %  of  total 
construction. 

the 

investment 

low.  Equipment 

in  Finland  remains 
Equipment 
comparatively 
investment 
rebounded  last  year  as  capacity  utilisation  by 
businesses increased. However, at around 5.2 % of 
GDP and 23.0 % of total investment, lower levels 
than  last  year,  equipment  investment  (gross)  in 
Finland  remained  one  of  the  lowest  in  the  EU.  In 
addition, it is expected to decelerate rather soon, as 
external trade, and as a result capacity utilisation in 
Finland, will in all likelihood be affected by rising 
international trade tensions. 

Finland’s  quality  of  products  has  broadly 
stabilised.  The  relative  demise  of  the  country’s 
electronics  sector  (specifically  the  mobile  phone 
industry)  has  had  a  strong  negative  impact  on  the 
volumes  of  high  tech  products  it  exports.  Among 
the  best  performing  manufacturers  in  productivity 
terms  in  the  EU,  (18)  Finland  currently  has  the 
lowest  proportion  of  high  tech  exports.  At  the 
same time, a specialisation in exports of medium-
to-low and medium-to-high tech exports has taken 
place (see Graph 3.4.2). By contrast, the country’s 
export  sophistication  index  (Hausmann’s  export 
sophistication index; International Monetary Fund, 
2017)  points  to  less  worrying  losses  of  non-cost 
competitiveness. 

the 

sector, 

the  manufacturing 

In 
firm-level 
productivity  differentials  increase.  In  Finnish 
manufacturing firms, labour productivity grew at a 
least 
solid  pace  until  2008,  except  for 
productive firms where it stagnated. After 2008, it 
has  been  relatively  unchanged  in  the  central  parts 
of  the  productivity  distribution,  continued  its  fall 
in the lower end and continued to grow among the 
most  productive  firms.  This  has  resulted  in  an 
increasing  gap  between  the  least  productive  and 
the most productive firms (European Commission, 
2018b). Finland has a relatively high proportion of 

(18)  Belgium,  Denmark,  Germany,  the  Netherlands,  Austria, 

Finland, Sweden, United Kingdom.  

34 

909294969810010210410610811000010203040506070809101112131415161718Index (2010 = 100)Nordic peers (DK, SE)FIEU 
 
 
                                                           
3.4. Competitiveness reforms and investment  

financially  distressed  and  largely  unproductive 
firms  which  tie  up  a  considerable  amount  of 
labour,  capital  and  other  resources  which  could 
better  serve  the  economy  if  allocated  to  more 
productive activities (see Graph 3.4.3). 

Graph 3.4.2:  Share of high, medium-high, medium-low and 
low technology in total manufacturing exports 

making  and  boosting  domestic  ownership  of 
structural reforms. 

Graph 3.4.3:  Real labour productivity in manufacturing 

Source: European Commission 

A  large  majority  of  investment  in  physical  and 
intangible assets is made by a small number of 
firms.  The  investment  ratio  among  the  top  10 % 
investing firms is several times higher than that of 
the  median  firm,  which  in  turn  has  an  investment 
ratio close to the least investing firms. At the same 
time,  firm-level  data  make  it  evident  that  the 
decline  in  the  overall  business  investment  ratio 
comes  predominantly  from  the  upper  end  of  the 
investment  distribution.  In  the  middle  of  the 
distribution,  the  decline  has  been  more  modest, 
and, in the lower tail, the investment ratio has been 
largely stable over time.  

Following 

The  Finnish  Productivity  Board  has  been 
consulted  in  the  ongoing  European  Semester 
Council 
the 
exercise. 
Recommendation, 
the 
Finland 
Tuottavuuslautakunta  as  National  Productivity 
Board  in  October  2018.  National  Productivity 
Boards  are  objective,  neutral  and  independent 
institutions  that  can  investigate  the  productivity 
challenges,  contributing  to  evidence-based  policy 

2016 
appointed 

(1) Sample size: 11 000–13 000 firms. 
(2) Firms are sorted by productivity level: p50 denotes 
median firms; p25 and p75 are the lower and upper 
quartiles; p05 and p95 are the lower and upper tails of the 
distribution. 
Source: CompNet database 

Investment needs 

Focusing  investments  on  human  capital,  on 
research  and  innovation,  and  on  energy  and 
strengthen 
infrastructure  would 
transport 
Finland’s long-term growth potential. Untapped 
human capital can hinder the progress of inclusion 
and  employability  and  reduce  the  potential  for 
increases  in  productivity  (see  Section  3.3).  In 
parallel,  research  and  innovation  intensity  has  not 
yet  recovered  from  the  crisis  years  and  appears 
insufficient  to  diversify  exports  towards  higher-
tech  goods  in  the  longer  term.  Amid  dispersed 
population,  lack  of  affordable  housing  in  growth 
centres  and  transport  bottlenecks  may  hinder 
labour  mobility.  Long  distances 
to  external 
markets  are  weighting  on  exporting  businesses. 
intensive 
The  decarbonisation  of 
industry  and  the  transport  sector  will  require 
higher private and public investment. Research and 
innovation  are  also  needed  to  match  Finland's 
carbon neutrality objectives.  

the  energy 

35 

0%5%10%15%20%25%30%35%40%45%0001020304050607080910111213141516Hi-TechMed-Hi-TechMed-TechMed-Low-Tech0204060801001201401609900010203040506070809101112131415real value added / employee (EUR thousands)lprod_p5lprod_p25lprod_p50lprod_p75lprod_p95 
 
 
 
3.4. Competitiveness reforms and investment  

Box 3.4.1: Investment challenges and reforms in Finland 

Section 1: Macroeconomic perspective 

In  2017,  overall  investment  in  Finland  remained  above  EU  average,  but  was  even  more  concentrated  on 
construction. Equipment investment remained one of the lowest in the EU. Overall investment in intellectual 
property  in  Finland  was  still  declining.  In  manufacturing,  the  decline  in  research  and  development 
investment was not limited to the electronics sector. This might signal further specialisation in lower value-
added  industries.  Public  expenditure  on  research  and  development  stabilised.  Foreign  direct  investment 
remained relatively low, even though inflows were markedly on the rise (see Section 3.4). 

Section 2: Assessment of barriers to investment and ongoing reforms 

Source: European Commission 

Finland  has  maintained  a  good  environment  for  doing  business  and  cost  competitiveness  has  clearly 
improved.  In  particular,  the  pharmacy  sector  is  being  reformed.  The  opening  to  competition  of  the  rail 
market is going ahead. Also, the government has tabled a proposal to amend the Competition Act so as to 
increase transparency from publicly owned entities (see Section 3.4). 

Business Finland is the main public funding agency in Finland. It helps businesses go global. It also supports 
and funds innovations. Funding awarded by Business Finland in 2017 amounted to EUR 492 million. 

Selected barriers to investment and priority actions underway 

1/  Non-cost  competitiveness  and  low  productivity,  although  recovering,  remain  a  concern.  Finland  has 
experienced  a  shift  in  specialisation  towards  intermediate  goods  and  from  high  tech  industrial  sectors  to 
medium tech industrial sectors. The shift partly underpins an insufficient level of research and development 
and  innovation  investment  to  kick-start  growth  and  to  diversify  exports  towards  higher-tech  goods  in  the 
medium-term. There is potential for further increasing cooperation between academia and businesses as an 
incentive  to  investment  in  research  and  development  (see  Section  3.4).  Also,  long  processing  times  for 
permits slow down firms’ investment progress (Confederation of Finnish Industries, 2019). 

2/  Some  problems  remain  in  the  labour  market.  A  new  Finnish  wage-setting  model  has  emerged.  In  this 
model,  pay  rises  in  the  non-tradable  sector  are  linked  to  the  increases  first  agreed  in  the  tradable  sector. 
However,  no  formal  agreement  on  this  model  has  been  reached  (see  Section  1).  Also,  obstacles  to  local 
bargaining  persist,  mostly  for  small  and  medium-sized  enterprises  and  start-ups  (European  Commission, 
2018b).  Low  labour  mobility  partly  reflects  housing  and  transport  bottlenecks  (Poghosyan,  2018  and 
International Monetary Fund, 2018).  

36 

Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning EnergyTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
Research & development and innovation 

the 

Finland, 

research 

Falling  investment  in  intellectual  property (19) 
and 
including 
in 
development,  remains  a  source  of  concern. 
Since  2009  business  research  and  development 
intensity declined strongly. One of the reasons for 
the  decline  was  disruptive  technological  change, 
which  strongly  affected  the  country’s  largest 
private research and development spender (Nokia) 
(Fornaro  et  al.,  2018).  As  a  result,  Finland 
experienced 
in  business 
expenditure  on  research  and  development  among 
EU countries, from 2.7 % of GDP in 2009 to 1.8 % 
in  2016.  Consistently,  investment  in  intellectual 
property in volume terms still declined  in Finland 
in  2017  (see  Graph  3.4.4).  The  decline  was  no 
longer  limited  to  the  electronics  sector.  Other 
sectors  were  affected  as  well,  notably  electrical 
equipment  (see  Graph  3.4.5).  Nevertheless,  at 
4.0 %,  the  share  of  investment  in  intellectual 
property  in  GDP  in  Finland  remained  slightly 
above the EU average (3.9 % of GDP).  

steepest  drop 

Graph 3.4.4:  Intellectual property product investment in 

volume 

Source: European Commission 

(19)  Intellectual property products is a national account concept 
(NA.117)  that  comprises  research  and  development  (NA. 
1171), mineral exploration and evaluation (cost of drilling, 
aerial  or  other  surveys,  transportation,  etc.)  (NA.1172), 
computer  software  and  large  databases  (NA.1173)  and 
entertainment,  literary  or  artistic  originals  of  manuscripts, 
models, films, sound recordings, etc. (NA.1174). 

The proportion of fast-growing innovative firms 
remains  below  the  EU  average  (20).  The  growth 
of firms in innovative sectors is an important factor 
for  structural  change  of  the  economy.  This  is 
important 
for  Finland,  where  a  disruptive 
technological change has led to a decline of certain 
sectors  of  the  economy  (mobile  phones,  paper 
promotional 
industry). 
activities (21),  start-up  rates  in  Finland  remain 
below  the  EU  average  and  there  is  potential  for 
additional  targeted  policy  action.  In  recent  years, 
the  availability  of  venture  capital  has  declined 
considerably,  compared  to  pre-crisis  levels,  but 
non-research 
innovation 
expenditure  of  firms  has  decreased  as  well 
(Eurostat, 2015). 

development 

Despite 

various 

and 

Graph 3.4.5:  Research and development gross capital 

formation by industry and year - flows 

Source: European Commission 

research 

research 

and  development 

a  decline,  public 

After 
and 
development  expenditure  is  now  stabilising. 
Public 
intensity 
declined from 1.1 % in 2009 to 0.9 % in 2017 (see 
Graph  3.4.6).  Nevertheless,  Finland  still  ranks  at 
the 
in  public  research  and 
development  intensity.  Public-sector  funding  of 
business  research  and  development  stood  at  only 
0.08 %  of  GDP  in  2015,  a  modest  proportion 

the  EU 

top  of 

(20)  The  share  of  employment  in  high-growth  enterprises  in 
innovative  sectors  was  9.5 %  in  2015,  down  from  11.4 % 
in 2013 and ranking low in the EU. 

(21)  Including  schemes  such  as  Aalto  University’s  ‘Start-Up 
Sauna’, a 1500 square  meter industry hall  and co-working 
space that is a focal meeting point in Northern Europe for 
entrepreneurs and investors alike. 

37 

020406080100120140000102030405060708091011121314151617index (2010 = 100)EUNordic peers (DK, SE)FI0500100015002000250030003500400045005000000102030405060708091011121314151617million eurosManufacturingManufacturing without electronics sectorServices totalElectronics industry 
 
 
                                                           
 
                                                           
compared  to  other  innovation  leaders  (22)  and  has 
been  stagnating  since  2011.  At  the  same  time, 
private co-financing of public research, which is an 
important  basis  for  knowledge  transfer  and  an 
indicator  of  science-business  cooperation,  is  also 
below the EU average (2015, Finland: 0.047 % of 
GDP,  EU  0.050 %  of  GDP)  and  on  a  downward 
trend since 2007. 

is  an  ‘innovation 

Overall,  Finland  remains  an 
‘innovation 
leader’.  In  the  European  Innovation  Scoreboard, 
Finland 
leader’  (European 
its  performance 
Commission,  2018j).  While 
declined  between  2010  and  2014,  it  improved 
every  year  since.  High-quality  human  resources, 
attractive  research  and  development  systems,  an 
innovation-friendly  environment,  relatively  high 
levels  of  public  and  private  funding  of  research 
and  development  and  innovation,  and  intellectual 
assets lead to a good performance in the European 
Innovation  Scoreboard  and  constitute  favourable 
framework  conditions  for  innovation.  However, 
these  conditions  are  not  yet  matched  by 
corresponding  economic  outputs.  Relatively  low 
sales and employment impacts constitute Finland’s 
weakest  innovation  dimensions  in  the  European 
Innovation Scoreboard. 

(22)  Finland  performs  well  below  the  EU  average  of  0.2 %  in 
2015  and  ranked  only  18th  in  the  EU  in  this  indicator  in 
2015. 

3.4. Competitiveness reforms and investment  

Graph 3.4.6:  Evolution of public and business research and 

development intensity  

GovERD: government expenditure on research and 
development 
HERD: higher education expenditure on research and 
development 
BERD: business enterprise expenditure on research and 
development 
Source: European Commission 

In 

Innovation  Scoreboard. 

Recent policy initiatives are expected to address 
some  of  Finland’s  weaker  elements  in  the 
European 
its 
National  reform  programme  of  spring  2018,  the 
government highlights cooperation between higher 
education  institutions  and  business  as  one  of  the 
key  bottlenecks  to  be  addressed  in  order  to 
stimulate  innovations  and  placing  them  on  the 
market. The policy focus, as reflected in the reform 
programme,  has  shifted  towards  the  creation  of 
internationally  competitive  centres  of  expertise  as 
well  as  to  the  support  of  research  infrastructures 
the  development  of  favourable  business 
and 
environments in technology-intensive sectors with 
the potential for upscaling, such as clean-tech, the 
bio-economy,  information  and  communications 
technology and health. 

Finland  promotes  research  and  development 
projects  in  areas  relevant  for  the  National 
energy  and  climate  plan.  Finland  shows  strong 
leadership  in  clean  energy  innovation  and  private 
research  and  development  spending.  (23)  A  few 
years  ago,  the  country  was  doing  more  than  three 
times better than EU average in terms of financing 

(23)  Finland is strong as regards resulting patents in energy field 
(twice  the  EU  average  of  the  number  of  patents  per 
inhabitants).  

38 

0.00.51.01.52.02.53.0000102030405060708091011121314151617R&D intensity (R&D expenditure as % of GDP)Public R&D intensity (GOVERD + HERD as % ofGDP)Business R&D intensity (BERD as % of GDP) 
                                                           
 
                                                           
3.4. Competitiveness reforms and investment  

by 

housing  cost  differentials  at  regional  level  not 
differentials 
matched 
regional  wage 
(International  Monetary  Fund, 
and 
2018, 
Poghosyan,  2018).  The  limited  regional  labour 
mobility  can  therefore  contribute  to  persistent 
labour  shortages  in  certain  sectors  (see  Graph 
3.4.8). 

One  of  the  government’s  strategic  goals  is  to 
improve  connectivity,  but  no  concrete  plans, 
including on financing, has been  presented  yet. 
Transport infrastructure projects, especially around 
vibrant urban areas, are currently being considered. 
In  addition,  high  speed  railway  lines  between 
Helsinki  and  Tampere  and  between  Helsinki  and 
Turku  are  considered.  The  objective  is  to  reduce 
travel time to an hour on both lines. A high-speed 
railway  between  Helsinki  and  Kouvala  is  also 
being  considered.  The  current  government’s 
budget  proposal  for  2019  comprises  a  EUR  40 
the 
million 
government  has  still  to  present  a  plan  how  to 
finance  the  implementation  of  these  projects.  In 
February  2019,  the  Ministerial  Committee  on 
Economic Policy gave its support for the proposal 
by the Ministry of Transport and Communications 
to  establish  project  companies 
to 
comprehensively  develop  the  railway  sector  and 
promote large-scale rail transport investments.  

package.  However, 

in  order 

transport 

Finland  is  linked  to  continental  Europe  along 
two  core  Trans-European  Networks  transport 
corridors:  North  Sea-Baltic  (links  Baltic  ports  to 
North Sea ports) and Scandinavian–Mediterranean 
(Scan-Med,  extends  from  Finland  and  Sweden  to 
the  Mediterranean  Sea).  The  total  length  of  the 
core  network  in  Finland  is  2  460  kilometres.  The 
use  of  Connecting  Europe  Facility  funding  for 
Finnish  infrastructure projects  has  been  modest  in 
the  current  Multiannual  Financial  Framework  and 
could  be  improved  in  the  next  generation  of  the 
Connecting Europe Facility. 

As  a  result,  major  infrastructure  investments 
are  being  planned 
improve  Finland’s 
to 
accessibility.  New  transport  connections  to  both 
the  north  and  the  south  are  currently  considered 
(The  Barents  Observer,  2018;  Prime  Minister’s 
Office,  2018b):  to  the  north,  a  connection  to  the 
Arctic Ocean and to the south, a connection to the 
European  rail  network  via  a  Helsinki-Tallinn 
tunnel and Rail Baltica. 

clean  energy  research  (in  %  of  GDP).  It  is 
committed  to  double  the  funding  of  some  of  its 
clean energy funding programmes by 2021. Still, it 
has to be seen how recent cuts in overall research 
and  development  funding  will  affect  Finland’s 
performance on clean energy research. 

Digital  transformation  of  public  services  still 
falls  short  of  what  could  be  expected  by 
businesses.  Digital  public  services  for  businesses 
remain  limited  and  significant  differences  persist 
among  businesses 
integration  of  digital 
technology.  Finnish  small  and  medium-sized 
enterprises  are  also  reluctant  to  use  the  untapped 
potential of online trade within and beyond the EU 
(European Commission, 2018k). 

in 

Mobility and transport infrastructure  

a 

very 

suffers 

Finland 
specific 
from 
geographical  situation.  The  country  is  sparsely 
populated  with  long  internal  distances.  Finland  is 
also  an  Arctic  country,  far  from  central  market 
areas.  From  a  logistical  perspective,  it  is  largely 
dependent on transport via the Baltic Sea. Overall, 
this  is  why  transport  costs  have  a  relatively  high 
impact on the final price of products in Finland in 
comparison  to  other  countries.  As  a  result,  the 
functionality  of  the  transport  network  has  a  great 
impact  on  the  competitiveness  of  business  and  on 
mobility  in  general  (Finnish  Transport  Agency, 
2018a). 

The  quality  of  infrastructure  is  high  but  it  has 
declined.  The  quality  of  roads,  the  rail  network, 
ports,  airports  and  energy  networks  remains  high 
by EU standards (World Economic Forum, 2017). 
In  the  past,  this  underpinned  the  competitiveness 
of  Finnish  firms,  including  in  rural  and  remote 
locations.  However,  the  recession  has  put  public 
finances  under  pressure  and  led  to  some  regular 
infrastructure 
maintenance  and  upgrading  of 
having to be scaled down or postponed, especially 
with respect to roads and railways. This has caused 
a  gradual  and  relative  decline  in  quality  and 
services compared with other economies. 

Recent  analyses  point  to  a  relatively  limited 
regional  mobility  in  Finland  compared  to  EU 
peers.  The  huge  geographical  distances  across 
regions  and  the  relatively  low  population  density 
constitute  natural  impediments  to  cross-regional 
labour  mobility,  which  is  further  hindered  by 

39 

 
3.4. Competitiveness reforms and investment  

Energy and climate  

Finland is broadly on track to reach its Europe 
2020 climate targets, but without further policy 
measures, it is expected to miss its 2030 climate 
target.  Finland  aims  to  reduce  its  greenhouse  gas 
emissions  in  the  non-Emission  Trading  Scheme 
sectors  by  16 %  by  2020  (compared  to  2005). 
According  to  the  latest  national  projections  and 
taking  into  account  existing  measures,  the  2020 
target is expected to be missed by a small margin 
of 0.7 percentage point. However, under the Effort 
Sharing Regulation, the country has an objective of 
reducing non-Emission Trading Scheme emissions 
by 39 % by 2030 (from 2005 levels). This appears 
challenging  as  there  is  a  gap  of  17  percentage 
points  between  the  2030  target  and  the  country’s 
own 
reductions.  The 
emissions 
decarbonisation  of  the  energy  intensive  industry 
and the maintenance of a sustainable forest carbon 
sink  are  important  challenges  in  a  longer  term 
perspective.  Together, 
require 
significantly higher private and public investments 
in low carbon technologies and practices. 

these  will 

projected 

As  transport  emissions  make  up  the  largest  — 
and  growing  —  share  (40 %)  of  the  non-
Emission  Trading  Scheme  emissions,  measures 
to  decarbonise  that  sector  are  critical  to 
meeting the 2030 climate-related objective. This 
will be done by cutting by half the oil consumption 
compared  to  2005  and  developing  further  electric 
vehicles,  according  to  the  national  energy  and 
climate  strategy  and  the  medium-term  climate 
change policy plan for 2030. In particular, Finland 
is a global leader in developing second-generation 
biofuels.  Electric  transport  presents  another  cost-
efficient option for the sector, given the advanced 
decarbonisation of the power sector and significant 
cost  reductions  notably  in  wind  power.  (24)  Two 
new  nuclear  power  plants, 
they  become 
operational as expected, will increase the share of 
carbon-free electricity. (25) 

if 

(24)  In 2017, 3 600 km of railway line was electrified in Finland 
current 
(Finnish  Transport  Agency  2018b).  The 
electrification  project  includes:  the  Turku-Uusikaupunki 
line electrification (EUR 21 million) (Ministry of Transport 
and Communications, 2018). 

(25)  The launch of the Olkiluoto 3 nuclear power plant reactor 
has  recently  again  been  postponed.  It  is  now  expected  to 
begin production in 2020. A licencing procedure has been 
started for another nuclear power plant, Hanhikivi 1. 

in 

line  with 

the  Regulation  on 

the  Energy  Union, 

In  2018,  Finland  adopted  a  climate  change 
policy  plan  and  submitted  a  draft  national 
energy  and  climate  plan.  In  its  national  energy 
and  climate  plan  to  be  adopted  by  31 December 
2019 
the 
Governance  of  the  Energy  Union  and  Climate 
Action, (26) Finland will provide an overview of its 
investment  needs  until  2030  for  the  different 
dimensions  of 
including 
renewable  energy,  energy  efficiency,  security  of 
supply, and climate mitigation and adaptation. The 
information provided will further contribute to the 
identification  and  assessment  of  energy-  and 
climate-related 
investment  needs  for  Finland. 
According to the draft submitted on 20 December 
2018,  the  investment  needs  on  energy  supply 
would  reach  close  to  EUR 3  billion,  covering  the 
further  deployment  of 
renewable  electricity 
(EUR 600-750 million) and the ban of coal, a new 
interconnector  with  Sweden  (EUR 200  million), 
public charging  infrastructure for  electric  vehicles 
(EUR 415  million),  data  exchange  solutions,  and 
the  development  of  biofuels  notably 
the 
transport  sector  (EUR 1.3  billion).  In  addition  to 
these,  the  security  of  electricity  networks  is  also 
expected  to  require  significant  investments  (the 
total  investment  by  grid  companies  on  security 
amounted to EUR 3 billion over 2016-2018). 

in 

Finland  is  on  track  on  its  2020  renewable 
energy  target,  but  the  higher  targets  for  2030 
will require additional efforts. With a renewable 
energy  share  of  40.0 %  in  gross  final  energy 
consumption  in  2017  (increasing  since  2017), 
Finland  is  already  above  its  2020  target  of  38 %. 
However, the national energy and climate strategy 
aims at reaching over 50 % of renewable energy in 
gross final energy consumption by 2030. This aim 
encompasses an increase in all sectors, including a 
mandatory  share  of  30 %  for  biofuels  in  transport 
(18.8 % in 2017). 

In  parallel,  Finland  is  also  on  track  on  its 
energy  efficiency  target,  but  energy  demand  is 
swiftly  rising.  In  terms  of  energy  efficiency, 
Finland  was  already  doing  better  than  its  2020 
for  primary  energy 
target 
energy 
for 
consumption 
final 
consumption  compared 
targeted 
the  2020 
levels).    After  a  slight  increase  in  2016  compared 
to  2015,  final  energy  demand  has  stabilised  in 

in  2017 

(-8 % 

-5 % 

and 

to 

(26)  European Parliament and the Council (2018). 

40 

 
                                                           
                                                           
3.4. Competitiveness reforms and investment  

2017  and  primary  energy  demand  has  slightly 
reduced compared to 2016.   

Potential  for  energy  efficiency  savings  exists  in 
all  sectors.  The  energy  intensity  of  the  services 
sector and of households is above the EU average. 
In  addition,  the  energy  intensity  of  the  industry 
sector  in  Finland  is  one  of  the  highest  in  the  EU, 
representing  44 %  of 
total  final  energy 
consumption  in  2016  —  well  above  the  EU 
average (25 %). 

the 

enabling  more  pharmacies  to  be  established,  in 
particular  independent  pharmacies.  Other  aims  of 
the  reform  are  to  shorten  the  time  needed  for 
starting a pharmacy, to promote price competition 
in  non-prescription  medicines,  and  to  align  the 
retail side of the pharmacy sector with the ongoing 
reform  of  the  healthcare  and  social  care  systems 
(see  Section  3.1).  However,  there  is  still  scope  to 
further  ease  operational  restrictions  as  regards 
distribution  channels  for 
the  sales  of  non-
prescription medicines. 

is 

is 

in 

listed 

the  country 

The  recycling  rate  of  municipal  waste  remains 
below EU average. Finland has put a lot of effort 
into improving its recycling rate. However, despite 
its  progress, 
the 
Commission’s  ‘Early  Warning  report’    as  one  of 
the EU Member States at risk of missing the 2020 
municipal  waste  recycling  target  of  50 %.  In 
particular,  municipal  waste 
increasingly 
incinerated  (60 %  in  2017  compared  to  55 %  in 
2016).  Collection  in  rural  areas  has  not  been  a 
priority  so  far  because  of  the  low  collection 
volumes and long distances between properties. In 
parallel, door-to-door recycling collections in more 
suburban areas have also not been a priority, while 
the extended producer responsibility schemes have 
been  fragmented.  In  addition, 
the  roles  and 
responsibilities of the municipalities have changed 
repeatedly  in  recent  years.  This  has  created 
uncertainty and resulted in a lack of investment. 

3.4.2.  EFFICIENT AND INTEGRATED MARKETS 

Competition 

The regulatory environment is being improved. 
A  series  of  reforms  aimed  at  improving  the 
regulatory  environment  have  been  carried  out, 
such  as  the  liberalisation  of  shop  opening  hours, 
the  amendments  in  2017  to  the  Land  Use  and 
Building Act (132/1999), and the 2017 revision of 
the  Alcohol  Act  (1102/2017).  Finland  scores 
among  the  less  restrictive  Member  States  on  the 
Retail  Restrictiveness  Indicator  published  by  the 
Commission (European Commission, 2018l). 

The  pharmacy  sector  is  being  reformed.  The 
government has tabled two legislative proposals to 
amend  the  Medicines  Act  (27)  with  a  view  to 

(27)  Act 395/1987. 

to 

strengthen 
Efforts  are  being  made 
competition  neutrality.  The  Finnish  Competition 
and  Consumer  Authority  already  has  the  right  to 
intervene in the provision of goods and services in 
public sector business activities carried out by the 
state, municipalities, joint municipal authorities or 
entities  under  their  authority.  This  applies  when 
the  operating  models  or  structures  prevent  or 
distort  competition  in  the  market.  This  can  for 
instance  be  the  case  if  prices  do  not  reflect  costs. 
In  order 
strengthen  competition 
neutrality, the government has tabled a proposal to 
amend the Competition Act. The aim is to make it 
mandatory  for  entities  at  state,  municipality,  or 
joint  municipal  authority  level,  or  entities  under 
their  authority,  to  separately  mention  in  their 
financial  reports  the  provision  of  goods  and 
their  activities.  The  proposed 
services 
in 
amendment 
is  currently  being  examined  by 
parliament.  Such  transparency  will  make  it  easier 
to  establish  whether  competition  between  private 
and publicly controlled entities is fair. 

further 

to 

The opening of the rail market to competition is 
going  ahead.  On  1 January  2019,  the  new  Rail 
Transport  Act  entered  into  force.  The  revised 
legislation  aims  to  improve  the  functioning  of  the 
railway  transport  market,  and  implements  the 
Fourth  EU  Railway  Package  in  Finland.  Market 
opening is based on tendering and on the corporate 
railway 
the 
reorganisation 
undertaking, 
and 
guarantee 
competition-neutral  environment  for  all  service 
providers. The rolling stock company and the real 
estate  company,  separated  from  the  incumbent 
company,  are  expected  to  be  fully  operational  in 
spring  2019. 
  Concession  contracts  will  be 
concluded  and  the  new  transport  systems  will  be 
operational by 2026.  

incumbent 
an 

equal 

of 

to 

41 

 
                                                           
3.4. Competitiveness reforms and investment  

Public procurement 

The  merger  of  central  purchasing  bodies  is 
delayed.  The  merger  of  the  central  purchasing 
bodies  Hansel  and  KL-Kuntahankinnat  did  not 
take  place  on  1  January  2019  as  provided  for  by 
parliament.  Preparations  for  the  merger  took 
longer 
is  now 
than  anticipated.  The  merger 
expected to take place later in 2019. It is intended 
to  lead  to  a  more  streamlined  organisation  with  a 
shift  in  focus  to  larger  contracts  than  previously 
and more uniform public tendering. 

Network industries 

Digital transformation and telecommunications 

The  country  maintains  its  edge  in  digital 
transformation,  overcoming  the  setbacks  in  its 
electronic  sector.  Finland  is  among  the  top  most 
advanced  digital  economies  in  Europe,  boasting 
high broadband penetration  — the result of astute 
regulatory  measures  that  have  encouraged  market 
competition.  Despite  the  lack  of  specific  skills  in 
several 
communications 
is 
technology  niches,  Finland’s  performance 
particularly  strong  in  digital  skills,  digital  public 
services  and  integration  of  digital  technologies. 
Strong advanced digital infrastructure ensures that 
digitisation  is  well  embedded  in  the  overall 
entrepreneurial environment. (28) 

information 

and 

is  scope  for  further  automation 

in 
There 
industrial 
manufacturing.  With  138  installed 
robots  per  10  000  manufacturing  employees  in 
2016,  Finland  was  above  the  EU  average  in 
automation.  However,  the  density  of  industrial 
robots  in  manufacturing  was  considerably  lower 
in  Germany  (309),  Sweden  (223)  and 
than 
the  structural 
Denmark 
In  view  of 
similarities  between  Finnish 
and  Swedish 
manufacturing  and  the  fact  that  their  exporters 
often compete for the same orders, a lower density 
of 
to  weaken 
Finland’s export competitiveness. 

industrial  robots 

is  expected 

(211). 

(28)  Finland  ranks  second,  after  Netherlands,  in  the  digital 
transformation  enablers  index.  The  latter  is  on  five 
enabling  factors:    digital  infrastructure  (Finland,  4th), 
investments  and  access  to  finance  (Finland,  1st),  supply 
and  demand  of  digital  skills  (Finland,  5th),  e-leadership 
(Finland,  1st),  entrepreneurial  culture  (Finland,  26th).  In 
parallel,  Finland  ranks  third  in  the  digital  technology 
integration index — outcome in terms of digitalisation. 

of 
its 

Artificial  intelligence  is  expected  to  have  a 
strong  impact  on  the  Finnish  society.  Finland 
has  a  stated  ambition  to  be  at  the  forefront  in  the 
and 
artificial 
application 
consolidate 
in 
digitisation and automation. To prepare a national 
artificial intelligence programme, a steering group 
was appointed in 2017 with a mandate to deliver a 
final  report  by  April  2019  (Ministry  of  Economic 
Affairs and Employment, 2017).  

strong  position  globally 

intelligence 

A  north-east  passage  underwater  fibre  cable 
connection  (Arctic  Connect)  has  been  under 
study  for  several  years  (Ministry  of  Transport 
and Communications, 2016). The cable connection 
would  make  it  possible  to  implement  a  fast 
physical  telecommunications  route  from  Asia  to 
Northern  and  Central  Europe  via  Norway,  Russia 
and  Finland.  This  would  be  possible  because  it 
would  be  connected  to  the  Baltic  fibre  cable 
connection  between  Helsinki  and  Rostock.  In 
addition  to  providing  speed,  the  cable  would  also 
respond to the rapidly increasing need for capacity 
and  would  provide  a  reliable  alternative  to  the 
risky southern routes. 

Electricity and gas 

Interconnection  of  electricity  grids  with  the 
Nordic  and  Baltic  wholesale  markets  is  still 
insufficient.  Finland  has  reached  its  2020  targets 
in  terms  of  electricity  interconnection,  and  price 
convergence with Estonia has improved following 
the  completion  of  the  EstLink2  project.  However, 
despite  this  progress,  wholesale  electricity  prices 
in  Finland  are still  not fully  aligned  with  those of 
the  other  Nordic  countries.  This  results  from 
insufficient  interconnection  capacities  with  the 
Nordic  and  Baltic  market  area.  The  slow 
implementation  of  the  infrastructure  project  of 
common  interest  with  Sweden,  which  includes  an 
internal  line  in  Finland,  has  delayed  market 
integration. Insufficient attention has been given to 
further 
flexibility,  system 
stability  and  mitigating  adequacy  challenges 
arising from changes in the generation mix. 

improving  system 

The Finnish gas market is currently dependent 
on  one  single  supplier  (Russia)  leaving  end 
users  no  choice.  Finland’s  gas  isolation  will  end 
and  security  of  supply  will  improve  after  the 
completion of the first gas interconnector between 
Finland  and  Estonia.  This  project  of  common 

42 

 
                                                           
3.4. Competitiveness reforms and investment  

the  EU-average 

The weakest region in this regard is East-North at 
115 % (decrease against 2011), the strongest South 
Finland  at  139 %  (decrease),  while  Helsinki-
Uusimaa  is  at  129 %  (increase).  All  regions  lag 
behind 
in  non-research  and 
development  innovation  expenditure  and  exports 
of  medium-high  technology  manufacturing.  As 
regards  the  tertiary  educated  aged  30-34,  Finland 
as a whole performs above EU-average, at 112 %. 
The  Greater  Helsinki  area  (132 %)  and  West 
Finland (109 %) are in the lead, but the other two 
mainland  Finland  regions  lag  behind  the  EU 
average (South 96 %, East-North 95 %; see Graph 
3.4.7). While the Greater Helsinki area in Finland 
is  faring  better  than  the  EU  average  in  most 
respects, areas other than the Greater Helsinki area 
have  more  mixed  records,  most  notably  on  road 
accessibility. 

ecosystem 

innovation 

2018m).  The  main 

All  Finnish  regions  score  above  EU  average 
when assessing the quality and conditions in the 
(European 
regional 
regional 
Commission, 
bottlenecks  range  from 
the 
in 
participation  rate  of  adults  in  learning,  access  to 
broadband, 
technical  and 
design/creativity  skills  in  the  private  sector  to 
foreign direct investment and technology transfer.  

the  availability  of 

lower  scores 

There  are  relatively  high  differences  in  road 
accessibility  between  the  Finnish  regions,  but 
these  are  largely  explained  by  geography.  The 
average road accessibility in Finland is at 95 % of 
the  EU  average.  The  Greater  Helsinki  area  stands 
at  122 %  of  the  EU  average and  South  Finland  at 
110 %,  while  West  Finland  is  at  79 %  and  Åland 
Islands at 75 %. East-North Finland´s accessibility 
by  road  (67 %  of  the  EU  average)  is  the  lowest. 
East-North has much more land per capita than the 
other regions. West Finland covers plenty of rural 
areas, and Åland Islands is an island region. 

interest  is  known  as  the  ‘Balticconnector’.  It  is 
expected to generate major benefits to the Finnish 
system  and  market,  in  conjunction  with  other 
projects  of  common  interest  in  the  region.  The 
infrastructure projects need to be complemented by 
rapid implementation of market rules. 

3.4.3.  THE REGIONAL DIMENSION 

the 

Regional  disparities  persist.  Regional  disparities 
have slightly decreased (see Section 1), but remain 
strong,  especially in  the  northeast. Finland’s  GDP 
per  head  of  the  population  (in  purchasing  power 
standard)  was  at  109 %  of  EU  average  in  2016, 
with  regional  variation  between  144 %  in  the 
Greater  Helsinki  area  (Helsinki-Uusimaa)  and 
relative 
90 % 
in  East-North  Finland.  The 
performance  of  East-North  was 
least 
satisfactory  of  mainland  Finland  regions  in  terms 
of  productivity  (29)  and  unemployment  (30). 
Moreover,  East-North’s  population  growth  rate 
(-0.02 %  in  2010-2016),  accessibility  by  road  and 
rail,  and  internet  use  were  the  lowest  among  the 
five  regions  of  Finland.  East-North  Finland  also 
has  an  extremely  low  population  density  (8 
persons per km² or less). It is thus set to continue to 
benefit 
the  specific  Structural  Funds 
allocation  for  the  Northern  Sparsely  Populated 
Areas  in  2021-2027.  In  terms  of  population,  the 
regions  with  largest  urban  areas  have  grown.  The 
rural areas further away from the centres as well as 
the  smaller  cities  and  towns  tend  to  have  been 
deprived  in  comparison  with  urban  centres  and 
areas  directly  or  functionally  linked  to  these 
centres.  

from 

Regional  differences  in  factor  endowments  are 
less pronounced than in convergence indicators. 
The disparities in terms of innovation performance 
between  the  NUTS2  regions  (31)  are  not  as 
significant  as  the  differences  in  GDP  per  head. 
Finland's innovation performance stands at 128 % 
of the EU average (European Commission, 2017). 

(29)  Purchasing power standard in 2016 (95.5 % of EU average, 
Greater  Helsinki  area  119 %). 
Islands, 
productivity at 90 % of the EU average is the lowest among 
Finland's NUTS2 regions. 

In  Åland 

(30)  Unemployment rate at 9.6 % of the labour force in 2017. 
(31)  There are three levels of Nomenclature of Territorial Units 
for  Statistics  (NUTS)  defined.  This  category  refers  to 
regions  belonging  to  the  second  level  (NUTS  2,  also 
known as NUTS II), which is largely used by Eurostat and 
other European Union bodies. 

43 

 
                                                           
3.4. Competitiveness reforms and investment  

Graph 3.4.7:  Regions in Finland and factor endowments 

Source: European Commission 

3.4.4.  INSTITUTIONAL QUALITY 

the 

and 

have 

regulatory 

improving 

enterprises, 

Progress  has  been  made 
in  reducing  the 
regulatory  and  administrative  burden,  but 
challenges  remain.  Simplification,  cutting  red 
tape 
and 
administrative  environment,  especially  for  small 
and  medium-sized 
been 
prioritised  by  Finland  for  a  number  of  years. 
Progress  has  been  achieved,  in  particular  in  the 
digitisation  of  services  and  the  simplification  of 
procedures  required  to  obtain  various  permits. 
Continuous  attention  is  paid  to  evaluating  and 
decreasing 
the  overall  regulatory  burden  on 
enterprises,  in  particular  small  businesses.  Long 
processing  times  for  permits  slow  down  firms' 
investment  progress.  According  to  an  indicative 
estimate, there are about EUR 2.7 billion worth of 
investment  on  hold  because  of  delays  in  permit 
processing  (Confederation  of  Finnish  Industries, 
2019). 

Preparations are ongoing for an overhaul of the 
zoning and planning framework. The authorities 
are currently working on a reform of the planning 
framework.  The  new  framework  will  take  into 
account  the  developments  in  the  construction 
sector  and  will  allow  for  more  strategic  planning, 
in  particular  in  urban  areas.  The  draft  proposal 
could be ready for public consultation in 2020. 

44 

20406080100120140160InnovationscoreboardTertiaryeducatedEmploymentrateUnemployment rateRoadaccessibilityIndex, EU=100EUNon-capital regionsFinland averageCapital region 
 
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (32) 

2018 country-specific recommendations (CSRs)  

CSR  1:  Achieve 
the  medium-term  budgetary 
objective  in  2019,  taking  account  the  allowances 
linked to the implementation of the structural reforms 
for  which  a  temporary  deviation  is  granted.  Ensure 
the 
the 
administrative  reform  to  improve  cost-effectiveness 
and equal access to social and healthcare services.  

implementation 

adoption 

and 

of 

Finland  has  made  limited  progress  in  addressing 
CSR 1.  

Achieve  the  medium-term  budgetary  objective  in 
2019,  taking  account  the  allowances  linked  to  the 
implementation of the structural reforms for which a 
temporary deviation is granted.  

The  compliance  assessment  with  the  Stability  and 
Growth Pact will be carried out in spring 2019 when 
the final data for 2018 will be available.  

Ensure  the  adoption  and  implementation  of  the 
administrative  reform  to  improve  cost-effectiveness 
and equal access to social and healthcare services.  

Limited progress has been achieved on ensuring the 
adoption  and  implementation  of  the  regional  social 
and healthcare services reform. The draft laws on the 
reform  are  still  expected  to be  adopted  and  to  come 
into effect during the first quarter of 2019. However, 
the  general  elections  in  April  2019  risk  to  produce 
yet  further  delays.  Preparative  actions 
the 
forthcoming  counties,  responsible  for  the  reform, 
have  been  taken  in  such  manner  that  they  have  a 
good  degree  of  readiness  for  the  adoption  and 
implementation  of  the  reform.  Nevertheless,  at  the 
moment,  it  is  unclear  how  the  reform’s  savings 
mechanisms  might  deliver  the  planned  containment 
of the costs arising from the ageing population.  

in 

CSR  2:  Improve  incentives  to  accept  work  and Finland  has  made  limited  progress  in  addressing 

(32)  The following categories are used to assess progress in implementing the country-specific recommendations (CSRs):  
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations  to  be  interpreted  on  a  case  by  case  basis  taking  into  account  country-specific  conditions.  They 
include the following:  

-  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  national  reform  programme,  in  any  other  official 
communication to the national Parliament/relevant parliamentary committees or the European Commission, publicly (e.g. in a 
press statement or on the government's website); 

- no non-legislative acts have been presented by the governing or legislative body; 
-  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has 
not proposed any clearly-specified measure(s) to address the CSR. 

Limited progress: The Member State has:  
- announced certain measures but these address the CSR only to a limited extent; and/or 
-  presented  legislative  acts  in  the  governing  or legislative  body  but  these  have  not been  adopted  yet  and  substantial  further,  non-

legislative work is needed before the CSR is implemented; 

- presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 
Some progress: The Member State has adopted measures  
- that partly address the CSR; and/or  
- that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a few of the measures have 
been implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision 
but no implementing decisions are in place.  

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 

have been implemented.  

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

45 

 
 
                                                           
A. Overview Table 

ensure  adequate  and  well-integrated  services  for  the 
unemployed and the inactive.  

CSR 2  

Improve incentives to accept work and  

Limited  progress  has  been  made  on  reducing 
inactivity  and  unemployment  traps.  A  number  of 
reforms  in  the  labour  market  have  already  been 
introduced. Nevertheless, further measures would be 
needed  to  address  the  still  relatively  high  structural 
unemployment  (NAWRU  at  around  7%  in  2018). 
The  Finnish  authorities  are  waiting  for  the  outcome 
of  the  basic  income  experiment,  whose  first  results 
were presented on 8 February 2019. The experiment 
is expected to provide some information for revising 
the  social  security  system.  There  has  been  a  lot  of 
discussion  about  the  possible  future  reform  of  the 
tax-benefit  system.  However,  given  the  political 
agenda, no movement in this area is expected before 
spring  2019.  The  government’s  budget  for  2019 
introduces  complementary  measures 
to  promote 
employment and improve incentives to accept work. 

ensure  adequate  and  well-integrated  services  for  the 
unemployed and the inactive.  

Limited  progress  has  been  achieved  on  public 
employment  services.  The  number  of  one-stop-
shops,  Ohjaamot,  offering 
low-threshold,  cross-
sectoral  information,  advice  and  guidance  to  youth 
and young adults have been increased from 50 to 60, 
covering all regions in Finland. However, the formal 
adoption  of  the  regional  government,  health  and 
the  public 
social  services 
employment and entrepreneur services, has not taken 
place.  Also,  integration  of  services  could  have 
regressed: with the vocational education and training 
reform,  training  related  to  active  labour  market 
policies  is  now  under  the  responsibility  of  the 
Ministry  of  Education,  and  not  any  more  of  the 
Ministry  of  Employment,  so  further  away  from 
employment services. 

including 

reforms, 

CSR 3: Strengthen the monitoring of household debt 
including by setting up a credit registry system.  

Finland  has  made  limited  progress  in  addressing 
CSR 3  

Strengthen the monitoring of household debt  

Limited  progress  is  observed  on  monitoring  the 
household  debt,  through  the  setting  up  of  an  expert 
working 
debt 
assessing 
developments  and  possibilities  to  introduce  new 
macroprudential instruments into the legislation. 

household 

group 

including by setting up a credit registry system.  

Limited  progress  has  been  made  on  setting  up  a 
credit  registry  system.  The  Ministry  of  Justice  has 
commissioned  a  report  proposing  the  establishment 
of  a  centralized  comprehensive  (collecting  both 
positive  and  negative  information  on  debtors)  credit 

46 

 
Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 78 %.  

R&D target set in the NRP: 4 % of GDP  

A. Overview Table 

registry.  The  proposal  is  now  in  circulation  for 
comments  after  which  the  matter  will  be  further 
assessed.  The  group  should  report  of  its  work  and 
conclusions by the end of March 2019. The required 
legislation  would  only  be  tabled  after  the  next 
general election in April 2019. 

The employment rate in Finland in 2018 increased to 
[76,3  %]  (based  on  the  average  of  first  three 
quarters),  an  improvement  of  [2.3  %]  points  since 
2017 

In  2017,  R&D  intensity  in  Finland  was  2.76%  of 
GDP composed of 65% private investment (1.80% of 
GDP) and 34% public investment (0.94% of GDP).  

No progress towards the target has been made. While 
public  R&D  intensity  has  increased  by  0.3  %  per 
year in 2007-2017, business expenditure on R&D as 
a  percentage  of  GDP  decreased  by  2.6  %  per  year 
over the same period, resulting in an annual decrease 
of  total R&D intensity by 1.8 % since 2007. Finland 
will  not reach  its  national  target  for  2020 unless  the 
trend  in  business  expenditure  can  be  markedly 
reversed. 

National  greenhouse  gas  (GHG)  emissions  target:  
-  16  %  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme)  

Projected  emissions  in  2020:  -15  %  compared  to 
2005 

2020 renewable energy target: 38 %  

According to the latest national projections submitted 
to the Commission, and taking into account existing 
measures,  Finland  is  expected  to  miss  its  2020 
emissions target by a small margin of 0.7 %.  

Non-ETS emissions in 2017: -9 % 

Finland  missed  its  interim  target  for  2017  by  2 
percentage points. 

Despite  a  significantly  reduction  of  the  contribution 
from biofuels use in transport compared to 2015, the 
share  of  renewable  energy  in  gross  final  energy 
consumption  reached  41  % 
in  2017,  already 
exceeding  the  2020  target.  The  contribution  of 
heating  and  cooling,  with  almost  a  54.85  %  RES-
share for that sector, is increasing. 

47 

 
 
A. Overview Table 

Energy efficiency, 2020 energy consumption targets:  

Finland's 2020 energy efficiency target is 35.9 Mtoe 
expressed  in  primary  energy  consumption  (26.7 
Mtoe expressed in final energy consumption)  

Finland  reduced  its  primary  energy  consumption  by 
1.1 % from 32.1 Mtoe in 2016 to 31.7 Mtoe in 2017. 
Final  energy  consumption  remained  stable  at  25.2 
Mtep in 2017. Finland has already levels of primary 
and  final  energy  consumption  that  are  below  the 
indicative national 2020 targets. After an increase in 
2016,  the  stabilisation  (slight  decrease  of  primary 
energy)  observed  in  2017  should  be  sustained  to 
ensure the targets will be met in 2020. 

Early school/training leaving target: 8 %.  

Finland registered an increase in early school leaving 
in  2017  to  8.2  %,  a  0.3  %  pp  increase  compared  to 
the previous year. 

Tertiary  education  target:  42  %  of  population  aged 
30-34.  

Finland registered a decrease in tertiary attainment by  
1.5 pps to 44.6 % in 2017. 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion, expressed as an absolute 
number  of  people:  770  000  (base  year  2010:  
911 000).  

In  2017,  the  number  of  people  in  Finland  at  risk  of 
poverty  or  social  inclusion  was  849  000,  a  decrease 
of 52 000 since 2008 and a decrease of 48 000 since 
2016. 

48 

 
 
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

49 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio61.359.858.557.556.255.455.154.854.654.554.554.755.1Changes in the ratio (-1+2+3)-1.7-1.5-1.4-0.9-1.3-0.8-0.3-0.3-0.2-0.10.00.20.5of which(1) Primary balance (1.1+1.2+1.3)0.30.10.60.70.50.1-0.2-0.3-0.4-0.5-0.5-0.6-0.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)0.80.00.20.20.1-0.1-0.2-0.3-0.4-0.5-0.5-0.6-0.8(1.1.1) Structural primary balance (bef. CoA)0.80.00.20.20.20.20.20.20.20.20.20.20.2(1.1.2) Cost of ageing0.20.50.81.01.21.41.61.81.9(1.1.3) Others (taxes and property incomes)0.10.30.40.50.70.80.91.01.0(1.2) Cyclical component-0.50.20.30.50.40.20.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.0-0.10.10.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.2-1.4-1.3-1.4-0.9-0.7-0.5-0.6-0.6-0.6-0.5-0.4-0.3(2.1) Interest expenditure1.00.90.80.80.90.90.90.91.01.11.21.31.4(2.2) Growth effect-1.7-1.7-1.3-1.1-0.6-0.4-0.4-0.5-0.5-0.6-0.6-0.6-0.6(2.3) Inflation effect-0.5-0.5-0.9-1.1-1.1-1.1-1.1-1.1-1.1-1.1-1.1-1.1-1.1(3) Stock-flow adjustments-0.20.00.61.20.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.FI - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 4045505560657020162017201820192020202120222023202420252026202720282029Debt as % of GDP -FIBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario4050607020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -FIp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline4045505560657020162017201820192020202120222023202420252026202720282029Debt as % of GDP -FIBaselineHistorical SPB scenarioSGP scenario4045505560657020162017201820192020202120222023202420252026202720282029Debt as % of GDP -FIBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2029)55.144.058.156.956.0Debt peak year20182018201820182018Percentile rank55.0%34.0%Probability debt higher27.2%Dif. between percentiles18.6MEDIUMLong termDSALOWDebt sustainability analysis (detail)Medium termLOWLOWShort termLOW(S0 = 0.1)(S1 = -0.1)S2MEDIUM(S2 = 2.7)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
2) Latest data Q2 2018. 
3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); European 
Central Bank (all other indicators). 

50 

201320142015201620172018Total assets of the banking sector (% of GDP)1)258,3281,9265,3253,2201,9208,5Share of assets of the five largest banks (% of total assets)87,189,788,080,573,5-Foreign ownership of banking system (% of total assets)2)71,271,667,565,554,054,3Financial soundness indicators:2)              - non-performing loans (% of total loans)-1,61,51,41,21,1              - capital adequacy ratio (%)16,317,523,824,623,422,8              - return on equity (%)3)8,19,18,38,78,86,2Bank loans to the private sector (year-on-year % change)1)6,33,80,21,63,13,8Lending for house purchase (year-on-year % change)1)2,31,72,52,32,21,9Loan to deposit ratio2)-103,6102,494,394,892,8Central Bank liquidity as % of liabilities1)-0,40,31,92,52,0Private debt (% of GDP)147,7149,8152,9148,5146,4-Gross external debt (% of GDP)2) - public45,953,952,048,546,341,5    - private43,743,948,444,346,045,9Long-term interest rate spread versus Bund (basis points)*29,228,622,427,523,125,7Credit default swap spreads for sovereign securities (5-year)*25,124,020,624,419,010,3 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

1 People at risk of poverty or social exclusion: individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.       
2 Unemployed persons are all those who were not employed but had actively sought work and were ready to begin working 
immediately or within two weeks.       
3 Long-term unemployed are people who have been unemployed for at least 12 months.       
4 Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
5 Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
6 Average of first three quarters of 2018 for the employment rate, unemployment rate and gender employment gap. Data for 
unemployment rate is seasonally adjusted (annual series, for EE, EL, HU, IT and UK data based on first three quarters of 2018).       
Source: European Commission 

51 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)9,39,59,27,98,2:Gender employment gap (pps)2,81,92,13,33,53,7Income inequality, measured as quintile share ratio (S80/S20)3,63,63,63,63,5:At-risk-of-poverty or social exclusion rate1 (AROPE)16,017,316,816,615,7:Young people neither in employment nor in education and training (% of population aged 15-24)9,310,210,69,99,4:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)73,373,172,973,474,276,2Unemployment rate2 (15-74 years)8,28,79,48,88,67,4Long-term unemployment rate3 (as % of active population)1,71,92,32,32,11,7Gross disposable income of households in real terms per capita4 (Index 2008=100) 102,6101,4102,6103,5104,2:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)24085241542434624545::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0,7-0,8-0,20,3::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction555,353,653,757,056,9:Children aged less than 3 years in formal childcare28,033,232,532,733,3:Self-reported unmet need for medical care4,33,34,34,13,6:Individuals who have basic or above basic overall digital skills (% of population aged 16-74)::74,073,076,0: 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
1 Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
2 Programme for International Student Assessment results for low achievement in mathematics for 15 year-olds.       
3 Impact of socio-economic and cultural status on Programme for International Student Assessment scores. Values for 2012 
and 2015 refer respectively to mathematics and science. 
4 Average of first three quarters of 2018. Data for youth unemployment rate is seasonally adjusted (annual series, for EE, EL, 
HU, IT and UK data based on first three quarters of 2018).       
Source: European Commission, Organisation for Economic Co-operation and Development. 

52 

Labour market indicators201320142015201620172018 4Activity rate (15-64)75,275,475,875,976,7:Employment in current job by durationFrom 0 to 11 months16,516,116,017,618,5:From 12 to 23 months9,69,18,48,69,3:From 24 to 59 months15,316,716,414,914,4:60 months or over58,457,958,958,757,7:Employment growth* (% change from previous year)-0,7-0,5-0,10,51,22,6Employment rate of women(% of female population aged 20-64)71,972,171,871,772,474,4Employment rate of men (% of male population aged 20-64)74,774,073,975,075,978,0Employment rate of older workers* (% of population aged 55-64)58,559,160,061,462,565,3Part-time employment* (% of total employment, aged 15-64)14,014,114,114,915,015,1Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)15,315,415,115,615,816,6Participation in activation labour market policies(per 100 persons wanting to work)28,429,026,827,4::Transition rate from temporary to permanent employment(3-year average)31,431,128,825,9::Youth unemployment rate (% active population aged 15-24)19,920,522,420,120,117,0Gender gap in part-time employment10,610,19,010,210,610,2Gender pay gap1 (in undadjusted form)18,818,417,617,416,7:Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)24,925,125,426,427,4:Underachievement in education2::13,6:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)45,145,345,546,144,6:Variation in performance explained by students' socio-economic status3::10,0::: 
 
 
 
   
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator       
1 At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
2 Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
3 Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
4 People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
5 Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
6 Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.  
Source: European Commission, Organisation for Economic Co-operation and Development 

53 

Expenditure on social protection benefits* (% of GDP)Sickness/healthcare7,47,57,57,47,1:Disability3,43,43,43,23,1:Old age and survivors11,912,513,013,413,6:Family/children3,23,33,23,23,1:Unemployment2,02,32,62,72,6:Housing0,50,60,60,70,8:Social exclusion n.e.c.0,90,90,90,91,1:Total29,330,331,131,531,3:of which: means-tested benefits1,51,61,81,92,0:General government expenditure by function (% of GDP, COFOG)Social protection23,824,825,425,625,6:Health8,28,38,37,37,2:Education6,46,46,46,26,1:Out-of-pocket expenditure on healthcare (% of total health expenditure)18,719,019,019,720,4:Children at risk of poverty or social exclusion (% of people aged 0-17)*14,913,015,614,914,715,1At-risk-of-poverty  rate1 (% of total population)13,211,812,812,411,611,5In-work at-risk-of-poverty rate (% of persons employed)3,83,73,73,53,12,7Severe material deprivation rate2  (% of total population)2,92,52,82,22,22,1Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan0,30,10,20,20,10,2Tenant, rent at market price3,02,02,41,82,41,9Proportion of people living in low work intensity households4 (% of people aged 0-59)9,39,010,010,811,410,7Poverty thresholds, expressed in national currency at constant prices*120821200911965118521181511936Healthy life years (at the age of 65)Females9,0:9,39,08,9:Males8,4:8,89,39,4:Aggregate replacement ratio for pensions5 (at the age of 65)0,50,50,50,50,50,5Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::56,161,061,764,5GINI coefficient before taxes and transfers*48,248,549,149,250,350,2GINI coefficient after taxes and transfers*25,925,425,625,225,425,3 
 
 
 
   
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
4 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know.       
5 Percentage population aged 15-64 having completed tertiary education.       
6 Percentage population aged 20-24 having attained at least upper secondary education.       
7 Index: 0 = not regulated; 6 = most regulated. The methodologies of the Organisation for Economic Co-operation and 
Development product market regulation indicators are shown in detail here: 
http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
8 Aggregate Organisation for Economic Co-operation and Development indicators of regulation in energy, transport and 
communications (ETCR).       
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); 
Organisation for Economic Co-operation and Development (for the product market regulation 
indicators); SAFE (for outcome of SMEs' applications for bank loans). 

54 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry-8,393,692,50-0,113,046,02Labour productivity growth in construction-5,04-0,69-2,351,500,350,14Labour productivity growth in market services-0,24-1,46-0,220,971,271,84Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry11,75-2,81-0,952,54-1,64-6,59ULC growth in construction8,463,022,22-0,311,001,38ULC growth in market services2,543,790,680,190,67-0,81Business environment201220132014201520162017Time needed to enforce contracts3 (days)375485485485485485Time needed to start a business3 (days)17,017,017,017,017,017,0Outcome of applications by SMEs for bank loans40,230,410,570,230,260,39Research and innovation201220132014201520162017R&D intensity3,423,293,172,902,742,76General government expenditure on education as % of GDP6,406,406,406,206,10:Employed people with tertiary education and/or people employed in science and technology as % of total employment505152525353Population having completed tertiary education5333435363636Young people with upper secondary education6868686878887Trade balance of high technology products as % of GDP-0,87-1,02-0,98-1,23-1,40-1,40Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall1,491,341,29OECD PMR7, retail2,862,892,86OECD PMR7, professional services0,610,710,62OECD PMR7, network industries82,722,612,47 
 
 
 
  
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)  
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
          Carbon intensity: greenhouse gas (GHG) emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
          Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP    
Weighting of energy in the harmonised index of consumer prices: the proportion of 'energy' items in the consumption basket 
used for the construction of the harmonised index of consumer prices  
Difference between energy price change and inflation: energy component of harmonised index of consumer prices (HICP), 
and total harmonised index of consumer prices inflation (annual % change)  
Real unit energy cost: real energy costs as % of total value added for the economy  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)   
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. value added tax.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP  
Proportion of greenhouse gas emissions covered by EU emissions trading system (ETS) (excluding aviation): based on 
greenhouse gas emissions  
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR)  
Transport carbon intensity: greenhouse gas emissions in transport activity divided by gross value added of the transport 
industry  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels  
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels  
* European Commission and European Environment Agency  
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

55 

Green growth performance20122013201420152016MacroeconomicEnergy intensity kgoe / €0,180,180,180,170,18Carbon intensity kg / €0,330,340,320,300,31Resource intensity (reciprocal of resource productivity)kg / €0,951,080,910,900,90Waste intensity kg / €0,49-0,51-0,64Energy balance of trade % GDP-2,6-2,6-2,4-1,8-1,4Weighting of energy in HICP%8,378,127,847,637,09Difference between energy price change and inflation %-3,2-1,6-2,6-2,3-1,3Real unit of energy cost% of value added17,217,015,115,515,8Ratio of environmental taxes to labour taxesratio0,130,130,130,130,14Environmental taxes% GDP3,02,92,92,93,1Sectoral Industry energy intensity kgoe / € 0,230,230,230,230,23Real unit energy cost for manufacturing industry excl. refining% of value added19,919,818,419,320,1Share of energy-intensive industries in the economy% GDP10,810,910,810,710,6Electricity prices for medium-sized industrial users€ / kWh0,070,070,070,070,07Gas prices for medium-sized industrial users€ / kWh0,050,050,050,040,04Public R&D for energy % GDP0,080,080,080,080,03Public R&D for environmental protection% GDP0,020,010,010,010,02Municipal waste recycling rate%33,332,532,540,642,0Share of GHG emissions covered by ETS*%48,549,948,845,846,5Transport energy intensitykgoe / €0,530,530,540,580,59Transport carbon intensitykg / €1,341,341,271,291,46Security of energy supplyEnergy import dependency%47,250,050,248,246,0Aggregated supplier concentration indexHHI68,168,367,467,667,2Diversification of energy mixHHI0,200,200,210,210,21 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR FINLAND 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027 of 2 May 2018 (COM (2018) 321), this Annex presents the  preliminary Commission services 
views  on  priority  investment  areas  and  framework  conditions  for  effective  delivery  for  the  2021-2027 
Cohesion  Policy.  These  priority  investment  areas  are  derived  from  the  broader  context  of  investment 
bottlenecks,  investment  needs  and  regional  disparities assessed  in  the  report.  This  Annex  provides  the 
basis  for  a  dialogue  between  Finland  and  the  Commission  services  in  view  of  the  programming  of  the 
cohesion policy funds (European Regional Development Fund and European Social Fund Plus) (33). 

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

Despite  the  focus  on  building  a  well-functioning  innovation  ecosystem,  business  research  and 
development  intensity,  public  research  and  development  support  and  other  innovation  expenditure  of 
firms  have  declined,  and  scope  for  improvement  remains  for  science-business  cooperation  and 
internationalisation.  Priority investment  needs (34)  have  therefore  been  identified  to  enhance  research 
and innovation capacities and the uptake of advanced technologies, where appropriate, in line with 
regional smart specialization strategies, and in particular to: 

of 

on 

the 

basis 

national 

  strengthen innovation performance and foster productivity growth by identifying smart specialisation 
areas 
potential; 
develop  research,  competence  and  innovation  clusters  that  draw  from  regional  strengths  in  all 
regions, notably in northern sparsely populated and other transition regions; including making use of 
piloting, testing and demonstration environments; advancing development platforms; and increasing 
business-academia cooperation as well as interregional cooperation in new value chains, also across 
borders  within  the  framework  of  any  relevant  strategy,  markedly  the  EU  Strategy  for  Baltic  Sea 
Region;  

regional 

needs 

and 

and 

  strengthen 

in  companies; 

innovation  work 

including  promoting 

the  development  and 
commercialization  of  products,  services  and  production  methods  and  introduction  of  new 
technologies;  supporting  prototypes,  piloting  and  demonstrations  of  new  products,  materials  and 
production  methods;  developing  applied  research,  studies  and  experiments  as  well  operational  and 
commercialization  processes  that  support  businesses;    enhancing  innovations  that  reduce  harmful 
environmental effects and risks; and promoting research and development and innovation activities 
related  to  the  quality  and  sustainable  use  of  environment  and  resources  that  create  important 
preconditions for businesses, as well as corresponding piloting and demonstration actions. 

The  proportion  of  fast-growing  innovative  firms  and  start-up  rates  remain  below  the  EU  average. 
Priority investment needs have therefore been identified to  enhance the growth and competitiveness 
of small and medium-sized enterprises in line with the smart specialization strategy, and in particular 
to: 

  create new business activities; including  supporting start-ups and development of new business, as 
well  as  commercialization  and  entry  into  market  of  small  and  medium-sized  enterprises´  ideas, 
products and services; 

  promote small and medium-sized enterprises growth and expansion abroad;  including strengthening 
the  business  competence  and  readiness  to  expand  abroad  of  growth-oriented  companies  aiming  to 
international markets; supporting investments and development projects by small and medium-sized 

(33)  This Annex is to be considered in conjunction with the Proposal for a Regulation of the European Parliament and of the Council 
on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and in the Proposal for a Regulation 
of  the  European  Parliament  and  of  the  Council  on  the  European  Social  Fund  Plus  COM(2018)  382  and  in  particular  the 
requirements for thematic concentration and urban earmarking outlined in these proposals. 

(34)  The intensity of needs is classified in three categories in a descending order -  high priority needs, priority needs, needs. 

56 

 
 
                                                           
D. Investment Guidance on Cohesion Policy Funding 2021-2017 for Finland 

enterprises; developing company clusters, networks and other forms of cooperation, involving also 
large  companies  and  including  improving  the  visibility  of  the  Baltic  Sea  Region  as  a  cluster  of 
entrepreneurship to attract investment and expertise. 

Even  though  Finland  is  among  the  advanced  digital  economies  in  the  EU,  digital  transformation  of 
public  services  require  a  sustained  effort,  digital  public  services  for  businesses  remain  limited, 
significant  differences  persist  among  businesses  in  integration  of  digital  technology,  e-commerce  and 
selling  online  cross-border  lag  behind.  Investment  needs  have  therefore  been  identified  to  reap  the 
benefits of digitisation for citizens, companies and governments, and in particular to: 

 

increase  Information  and  Communications  Technology  up-take  in  small  and  medium-sized 
enterprises; 

  enhance  e-government  and  e-services,  including  the  take-up  of  Europe  wide  and  cross-border 

interoperable services.  

Finland's innovation leadership lacks economic impact, skills shortages persist, and knowledge transfer 
remains  insufficient.  Investment  needs  have  therefore  been  identified  to  develop  skills  for  smart 
specialisation, industrial transition and entrepreneurship, and in particular to: 

  promote innovation management in small and medium-sized enterprises; and support reskilling for 
smart  specialization  areas  within  firms,  regions  and  smart  cities,  including  in  cooperation with  the 
Baltic Sea Region; 

  develop capacities of higher education and research institutions to enhance the commercial viability 
and  market  relevance  of  their  research projects  as  well  as  to  take part  and  cooperate in  interactive 
and open innovation processes; and strengthen the integration of education and training institutions 
with innovation ecosystems, also across borders.  

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

The unemployment  and  inactivity  rates  are higher  than  in Nordic  peers. The  labour force  is shrinking 
due  to  ageing.  Priority  investment  needs  have  therefore  been  identified  to  improve  access  to 
employment, and in particular to: 

  provide integrated  support and services to unemployed and inactive, including for young people;  

  support self-employment, entrepreneurship and business creation;  

  develop work-life balance policies;  

  mobilise  the  social  partners,  civil  society  and  enterprises  to  address  discrimination,  gender 

inclusivity and the gender pay gap in the labour market. 

57 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2017 for Finland 

Labour  shortages  are  reported  across  sectors.  The  educational outcome  for  certain  groups  is  markedly 
lower  than  the  national  average.    High  priority  investment  needs  have  therefore  been  identified  to 
promote  life-long  learning,  notably  flexible  upskilling  and  reskilling  opportunities  for  all,  better 
anticipate  change  and  new  skills  requirements  based  on  labour  market  needs,  facilitate  career 
transitions and promote professional mobility, and in particular to: 

  support flexible learning pathways throughout the lifecycle, when relevant in cooperation with social 

partners, civil society and other stakeholders; 

  support  employers  in  fully  utilising  the  human  capital,  adapting  to  change,  developing  workforce 

training and stimulating professional mobility;  

 

fight early school leaving for at-risk groups and improve transitions from school to work. 

Inactivity  rates,  especially  for  men,  are  higher  than  in  Nordic  peers.  Priority  investment  needs  have 
therefore been identified to foster active inclusion with a view to promoting equal opportunities and 
active participation, and improving employability, and in particular to: 

  develop integrated policies and services to increase social inclusion, including community based and 

long-term care services; 

  ensure an effective move from activation measures towards employment, including for migrants and 

people with disabilities; 

  address material deprivation through food assistance to the most deprived, including accompanying 

measures.² 

Factors for effective delivery of Cohesion policy 

  support social innovation, social experimentations and up-scaling of innovative approaches;  

  adequate participation of social partners, civil society and other stakeholders in the delivery of the 

policy objectives; 

 

increased capacities of intermediate bodies and beneficiaries to prepare and implement projects; 

  broader use of financial instruments and/or contribution to Finland´s compartment under InvestEU 

for revenue-generating and cost-saving activities; 

  where appropriate build on the lessons learnt in East-North Finland during the implementation of the 

Commission pilot project on industrial transition.   

58 

 
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