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Fast Comment FinlandFinnish GDP grew by 3.0 percent in 2017

  1. GDP grew by 3.0 percent in 2017 – Q4 growth of 0.7/2.7 percent q-o-q/y-o-y
  2. Investments and net exports contributed the most to 2017 y-o-y GDP growth
  3. This is as good as it gets
GDP grew by 3.0 percent in 2017 – Q4 growth of 0.7/2.7 percent q-o-q/y-o-y
According to Statistics Finland’s preliminary data, Finnish GDP grew by 3.0 percent in 2017 compared with the previous year. As such, annual growth in 2017 was somewhat slower than we expected (our forecast was 3.3 percent) and the recently published GDP indicator data suggested. In Q4, GDP grew by 0.7 percent q-o-q/2.7 percent y-o-y. GDP data for Q3 2017 was revised downward to 0.2 percent q-o-q (previously: 0.4 percent) and 2.5 percent y-o-y (previously: 3.0 percent).
Investments and net exports contributed the most to 2017 y-o-y GDP growth
Domestic demand was the main contributor to annual GDP growth in 2017. It contributed a total of 2.5 percentage points to overall growth. Gross fixed capital formation, that is investments, contributed the most within domestic demand as it showed a 6.3 percent increase in 2017. Within investments, the volume of construction investments grew by 4.6 percent and the volume of investments in machinery and equipment expanded by 12.4 percent y-o-y. The growth rate of private consumption weakened somewhat from the previous year as it increased by 1.6 percent in 2017. Once again, private consumption growth was boosted by consumption of durable consumer goods. Demand growth for services, the largest component within the aggregated household consumption, slowed down slightly for the entire year, due to the weaker second quarter, but the acceleration in H2 2017 indicated that strong consumer confidence continues to drive service demand. Public consumption expenditure rose by 1.0 percent y-o-y. Net exports contributed an impressive 2.2 percentage points to 2017 overall growth. The volume of exports increased remarkably, by 8.3 percent y-o-y. The volume of goods exports increased by 8.1 percent and the volume of services exports by 8.6 percent y-o-y. The volume of imports increased by 2.6 percent y-o-y. A substantial negative contribution to overall growth resulted from the inventory change, which contributed a negative 1.7 percentage points to total GDP growth. In Q4 2017, private consumption increased by 0.7 percent, while government consumption decreased by 0.7 percent q-o-q. After a strong growth period, investments showed more signs of abating as the volume of investments decreased by 0.4 percent in Q4 from the previous quarter. Volume exports and imports increased by 2.2 percent and 0.6 percent q-o-q, respectively.
This is as good as it gets
The recovery of the Finnish economy since 2016 has been driven almost entirely by recovering productivity. Hours worked started adding to growth as late as H2 2017. To us this reflects the private non-financial corporate sector’s weakened profitability after the financial crises. In the recovery, Finnish companies have focused in restoring profitability by improving productivity, and only lately the corporate sector has started increasing the hours worked. This division between productivity and hours worked is most likely to change in 2018, with hours worked giving a larger contribution to growth. The balance of growth also improved in 2017, as both external and domestic demand gave a strong contribution to growth. However, without a new global demand spurt, which we see unlikely, it is not realistic to expect net exports to continue to be a similar growth engine as during the previous year. Furthermore, we see the investment cycle maturing, as the data already indicated. The construction investments, which account for over half of all investments, look to have peaked already in late 2016. Private consumption growth, which slowed a tad last year, is going to be a stabilising factor for overall growth as we go forward, thus the improving household real income outlook should support consumption in 2018. The bottom line, in our view, is that 2017 was the strongest year in terms of GDP growth in this cycle.




Tiina Helenius

Chief Economist Finland

Finland and Emerging Asia

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