Weak economy highlights importance of a sustainable long-term economic policy

The year 2023 was marked by a fall in inflation and a rise in geopolitical tensions. Thanks to the level of preparedness the most pessimistic scenarios were successfully avoided.

The banking sector turmoil in March remained short-lived, and Europe distinguished itself rather well in its management of the energy crisis. At the same time, progress with the vital reform of the Finnish and European economies faltered due to a weakened economic outlook and the global political situation.

Finland’s accession to NATO has strengthened security. The Bank of Finland will continue to play its part in ensuring the operation of critical financial market services, such as payment systems, in all circumstances.

Russia’s brutal and illegal war in Ukraine entered its second year. The Ukrainian people are pledging their lives for the freedom and democracy of all of Europe. Our role is a considerably easier one: to continue our unswerving support for Ukraine.

Inflation slowed in line with the monetary policy objective of the European Central Bank (ECB), and the purchasing power of households also began to rise, in Finland too.

Inflation in the euro area began the year at 8.6% in January and ended at 2.9% in December. Interest rate increases were continued until September, and the volume of securities held for monetary policy purposes was allowed to shrink. 

The effects of higher interest rates were felt in the financial and housing markets. Despite the weakness in the economy, Finnish households and businesses for the most part coped well with their higher loan servicing costs.

Credit losses of Finnish banks increased only a little, and there was even an improvement in their profitability and capital adequacy.

The revolution in digitalisation and technology will affect the tasks carried out by central banks. The Eurosystem’s joint project on a digital euro entered its preparation phase in 2023.

A digital euro would complement cash and extend the options available for different forms of payment. It would ensure that the euro is available to people and businesses in both physical and digital form.  

The new environment in which we operate also emphasises the significance of datasets and their analysis. The Bank of Finland and the Financial Supervisory Authority (FIN-FSA) have together established a centre of excellence for advanced analytics. Our aim is to be a leader in modern data analytics.

Climate change was seen and felt tangibly during 2023. Biodiversity loss became an important issue in society.

The Bank of Finland’s most significant climate measures concerned implementation of the ECB’s climate action plan and the sustainability objectives in the Bank’s financial assets management. 

The weak economy highlights the importance of a sustainable long-term economic policy. The country’s population is ageing rapidly and, at the same time, the public debt burden is growing. The Bank of Finland’s estimate of the sustainability gap grew to 4.5% relative to gross domestic product (GDP).

Finland was built through reliance on entrepreneurship, hard work, high-level expertise and also mutual understanding. Going forward, it’s time a path was found along which Finland can renew itself sustainably.

The Bank of Finland was active throughout the year within its sphere of responsibility, promoting a stable economy and sustainable economic growth.

I would like to take this opportunity to thank most sincerely Marja Nykänen, Tuomas Välimäki and Kimmo Virolainen for successfully piloting the Bank of Finland during my autumn leave of absence. I also extend my thanks to our staff and stakeholders for their valuable work and cooperation. The many fruitful results of this are set out here in the pages of our Annual Report.