Finland

2024 to be marked by a stagnant economy

In Finland, domestic demand faces a challenging landscape in 2024 primarily due to the widespread use of variable interest rates. Households are grappling with the repercussions of rising rates that are impacting their consumption patterns. The high interest rate environment is expected to ease, which along with falling inflation rates are expected to alleviate economic pressures and consequently bolster domestic demand. However, the overall demand will also be influenced by a weakened labour market, characterised by an uptick in unemployment rates. The marginal improvement in household consumption anticipated for 2024 is attributed to a blend of declining interest rates and favourable real wage growth. Despite the positive influence of easing interest rates and the boost from real wage growth, the concurrent rise in unemployment casts a shadow over the overall impact on household consumption.

The economic landscape in 2024 will also be affected by a government committed to constraining the fiscal deficit, as evident in its plans for expenditure cuts, tax adjustments, and broader reforms. However, against the backdrop of sluggish domestic and global activity, coupled with elevated interest rates, investments are poised to experience a further decline. While Finland is not immune to the ongoing global economic slowdown, there are optimistic expectations for improvements. The impact of external headwinds will continue, but a gradual recovery is expected in the latter part of 2024.

Fiscal responsibility is expected

The fiscal landscape for 2024 will be dominated by the government's concerted efforts to narrow the fiscal deficit through a combination of expenditure cuts, selective tax increases, and reforms. Despite these measures, the short-term consequence is a projected increase in the debt-to-GDP ratio. The commitment to fiscal prudence is expected to contribute to a partial narrowing of the fiscal deficit, reflecting the government's resolve to maintain financial stability.

Finland's current account balance is marked by a goods surplus but offset by a service deficit, driven in part by the Finnish penchant for international travel. Despite the persistent service deficit, a narrowing current account deficit is expected in 2024. This outlook is underpinned by expectations of a slightly improved goods surplus. Additionally, a somewhat improvement in primary income further contributes to the anticipated reduction of the current account deficit.

Upcoming Presidential and European Parliament elections

Parliamentary elections were held in 2023 so the next ones will not be held until 2027. 2024’s election agenda includes the Presidential election in January 2024 and the European Parliament elections in June. Although the Finnish President wields limited political power, these elections are still important to guage the Finnish sentiment. Alexander Stubb, a former prime minister of the current leading party, NCP, is leading the polls.

Key issues gripping the political scene include the complex situation on the eastern border with Russia, prompting discussions on security and international relations; this is especially the case as Finland recently joined NATO and the even more recent Defense Cooperation Agreement between Finland and the United States will give the American forces access to 15 installations and permission to store equipment and weapons on Finnish soil. Additionally, social security cuts recently voted in Parliament are a focal point, stirring debates on the balance between fiscal responsibility and social welfare.

Payment

Bills of exchange are not commonly used in Finland because they signal the supplier’s distrust of the buyer. A bill of exchange primarily substantiates a claim and constitutes a valid acknowledgment of debt.

Cheques, also little used in domestic and international transactions, only constitute acknowledgement of debt. However, cheques that are uncovered at the time of issue can result in the issuers being liable to criminal penalties. Moreover, as cheque collection takes a particularly long time in Finland (20 days for domestic cheques or cheques drawn in European and Mediterranean coastal countries; 70 days for cheques drawn outside Europe), this payment method is not recommended.

Conversely, SWIFT bank transfers are increasingly used to settle domestic and international commercial transactions. When using this instrument, sellers are advised to provide full and accurate bank details to facilitate timely payment, while it should not be forgotten that the transfer payment order will ultimately depend on the buyer’s good faith. Banks in Finland have adopted the SEPA standards for euro-denominated payments.

Debt Collection

Amicable phase

The goal of the amicable phase is to reach a voluntary settlement between the creditor and debtor without beginning legal proceedings. Finnish legislation obliges creditors to begin the amicable phase amicable phase via letters, followed up as necessary with a final demand for payment by recorded delivery or ordinary mail. This demand for payment asks the debtor to pay the outstanding principal increased by past-due interest as stipulated in the contract.

In the absence of an interest rate clause in the agreement, interest automatically accrues from the due date of the unpaid invoice at a rate equal to the central bank of Finland’s (Suomen Pankki) six-monthly rate, calculated by reference to the European Central Bank’s refinancing rate, plus seven percentage points.

The Interest Act (Korkolaki) already required debtors to pay up within contractually agreed timeframes or become liable to interest penalties.

Since 2004, the ordinary statute of limitations for Finnish contract law is three years.

Legal proceedings

Fast-track proceedings

For clear and uncontested claims, creditors may use the fast-track procedure, resulting in an injunction to pay (suppea haastehakemus). This is a simple written procedure based on submission of whatever documents substantiate the claim (invoices, bills of exchange, acknowledgement of debt, etc.). The court sets a time limit of approximately two weeks to permit the defendant to either respond to or oppose the petition. In addition, this fast track procedure can also be initiated electronically for cases of undisputed claims. The presence of a lawyer, although commonplace, is not required for this type of action.

Ordinary proceedings

Ordinary legal action usually commences when amicable collection has failed. A written application for summons must be addressed to the registry of the District Court, which then serves the debtor with a Writ of Summons. The debtor is given approximately two weeks to file a defence.

During the preliminary hearing, the court bases its deliberations on the parties’ written submissions and supporting documentation. The court then convokes the litigants to hear their arguments and decide on the relevance of the evidence. During this preliminary phase, and with the judge’s assistance, it is possible for the litigants to resolve their dispute via mediation and subsequently protect their business relationship.

Where the dispute remains unresolved after this preliminary hearing, plenary proceedings are held before the court of first instance (Käräjäoikeus) comprising between one and three presiding judges, depending on the case’s complexity. During this hearing, the judge examines the submitted evidence and hears the parties’ witnesses. The litigants then state their final claims, before the judge delivers the ruling, generally within 14 days.

The losing party is liable for all or part of the legal costs (depending on the judgement) incurred by the winning party. The average time required for obtaining a writ of execution is about 12 months. Undisputed claims in Finland can normally last from three to six months. Disputed claims and the subsequent legal proceedings can take up to a year.

Commercial cases are generally heard by civil courts, although a Market Court (Markkinaoikeus) located in Helsinki has been in operation as a single entity since 2002, following a merger of the Competition Council and the former Market Court.

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Enforcement of a Legal Decision

A judgment is enforceable for fifteen years as soon as it becomes final. If the debtor fails to comply with the judgment, the creditor may have it enforced by a bailiff, who will try to obtain an instalment agreement with the debtor, or enforce it through a seizure of assets.

For foreign awards, since Finland is part of the EU, it has adopted enforcement mechanisms applicable to court decisions issued by other EU members, such as the EU Payment Order and the European Enforcement Order. For judgments issued by non-EU members, the issuing country must be part of a bilateral or multilateral agreement with Finland.

Insolvency Proceedings

OUT-OF-COURT PROCEEDINGS

Finnish law provides no specific rules for out-of-court settlements. Negotiations between creditors and debtors are made informally. If an agreement is reached, it must still be validated by the court.

RESTRUCTURING PROCEEDINGS

The goal of restructuring is to allow an insolvent company to remain operational through administration, with the view that if the company is able to continue its business, it will be able to repay a larger part of its debts than would have been possible in the case of bankruptcy of the company. The commencement of these proceedings triggers an automatic moratorium, providing the company with protection from its creditors.

The board of directors maintains its power of decision but the receiver is entitled to control certain aspects of the company’s operations, including the creation of new debts and overseeing transfers of ownership.

LIQUIDATION

When debtors are unable to pay their debts when due and this inability is not temporary, they are placed into liquidation. Upon acceptance of a liquidation petition by the court, the debtor is declared bankrupt. A receiver is appointed, and a time limit is established for any creditors to present their claims. The receiver then establishes a proposed distribution scheme, whilst creditors supervise the selling of the estate and the distribution of the sales’ proceeds.

Last updated: January 2024