Finland’s slow recovery from the financial crisis: A demographic explanation

This article uses the National Transfer Accounts (NTA) method to explore how demographic changes have impacted recent macroeconomic developments in Finland. NTA allows us to break down national income and consumption by age. The results show that population ageing has already had a profound effect on the macroeconomy. The relatively large current account surplus at the beginning of the 2000s would have been substantially reduced because of ageing even without the concurrent structural problems in the export industry. The declining share of wage earners in the population reduces the savings rate, which in turn contributes to shrink the current account surplus. Population ageing is creating pressure for change in the level and structure of consumption as well as in relative prices. The growing need for public health and old-age care services presents a considerable challenge for public finances. It is essential that the labour supply is substantially increased in order that current levels of consumption can be maintained. The current level and age pattern of consumption relative to earnings must be adjusted in order to make them sustainable in the long term.