Finland’s long-term growth squeezed by demographic change and weak productivity
The Bank of Finland’s long-term forecast shows that population ageing and low productivity growth will weaken Finland’s economic growth and fiscal sustainability. In the baseline scenario, the rate of growth in gross domestic product (GDP) will be at its highest in the 2030s, averaging 1.8% annually. Without additional investment in education, in attracting foreign talent and in fixed capital involving new technologies, the growth outlook for Finland’s economy will generally be weak. A low birth rate will mean a declining number of children to be educated and a gradual erosion of human capital.
Bank of Finland’s long-term forecast has three scenarios for the growth outlook
The Bank of Finland’s long-term forecast for the period 2024–2075 consists of three scenarios concerning the future of Finland’s human capital, fixed capital and GDP. In the no-policy-change scenario, the growth in both human capital and fixed capital comes to a halt and then declines. As a consequence, the GDP is no longer increasing in the 2040s and shrinks from the 2050s onwards. This scenario depicts a situation in which factors driving economic growth are not being supported through additional investment. Annual net immigration is assumed to be 18,000 people throughout much of the forecast period.
In the baseline scenario, the highest GDP growth rate is in the 2030s, averaging 1.8% annually. Growth then slows gradually to just over 0.5% from the 2050s onwards. The scenario assumes that the proportion of 25–34-year-olds who have a higher education degree will rise to 50% by 2035. The assumption for annual net immigration over the long term is 27,000 people. Human capital accumulation will continue until the 2040s, after which the human capital stock will no longer grow. GDP growth will subsequently be reliant on growth in fixed capital.
In the optimistic scenario, average annual GDP growth in the 2030s will be 2%. Growth will then fall to 1.5% in the 2040s and stay at a little over 1% in the years 2050–2075. The scenario assumes that from 2040 onwards, 70% of those aged 25–34 will have a higher education degree. Annual net immigration is assumed to be 40,000 people, in accordance with the population projection of Statistics Finland. The stock of human capital will grow in the 2040s at an average annual rate of close to 1%. The growth will then slow to a rate of just above zero at the start of the 2070s.
Euro & talous article, Bank of Finland’s long-term forecast (in Finnish): Työikäisen väestön supistuminen ja heikko tuottavuus painavat Suomen pitkän ajan kasvunäkymää