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Fast Comment FinlandA moderate slowdown in Finnish GDP growth in Q2

  1. GDP grew in Q2 by 0.3 percent q-o-q and 2.5 percent y-o-y
  2. Domestic demand the main contributor to GDP growth, yet net exports turned positive
  3. Strong but gradually moderating growth likely to continue
GDP grew in Q2 by 0.3 percent q-o-q and 2.5 percent y-o-y
The preliminary data for Q2 2018 GDP showed that growth in the Finnish economy slowed considerably. The Finnish GDP grew by 0.3 percent q-o-q/2.5 percent y-o-y in Q2, whereas the corresponding numbers in Q1 were 1.2 and 2.8 percent. The quarterly GDP statistics released by Statistics Finland were somewhat weaker than the preliminary monthly GDP indicator suggested. Also the y-o-y GDP growth for Q1 2018 was revised down to 2.8 percent (was 3.1 percent).
Domestic demand the main contributor to GDP growth, yet net exports turned positive
The main contributor to the y-o-y GDP growth was domestic demand. The volume of private consumption increased by 0.7 percent from the previous quarter and by 2.1 percent from twelve months back, while government consumption expanded by 0.5 percent q-o-q and 2.8 percent y-o-y. Gross fixed capital formation grew by 1.9 percent q-o-q and 4.8 percent y-o-y. Within investments, growth was boosted by investments in machinery, equipment and transport equipment, where the y-o-y growth rate recovered to 4.2 percent from a contraction of 4.2 percent in Q1. Growth of construction investments slowed to 5.5 percent y-o-y from 6.9 percent in Q1. Net exports contributed positively to the quarterly GDP growth in Q2. The volume of exports decreased by 2.0 percent q-o-q, while the y-o-y growth rate was 3.7 percent. The volume of imports increased by 1.4 percent q-o-q and by 1.5 percent in y-o-y terms.
Strong but gradually moderating growth likely to continue
The slowdown in GDP growth in the second quarter was no surprise, given the clear weakening in growth in the eurozone, Finland’s key export market. All in all, growth continues to be driven by domestic demand, with consumption underpinning growth when the investment cycle has started to mature and the very high growth contributions from net exports seem also to be behind us. Export growth was still decent in Q2, but clearly slower than in the peak year 2017. Finnish export demand is responding to the weaker global industrial growth seen in the first half of this year. Consumption will be the key ahead, and we expect Finnish consumers to hold the baton in underpinning economic activity during H2 2018 and in 2019. Strong job growth and moderate inflation are fuelling household sentiment and real disposable incomes, and leading to stronger consumption. Adding to this are favourable financing conditions that are generally expected to remain accommodative for the foreseeable future. A particularly strong contribution to consumption growth has come from services, and this, being normally relatively labour-intensive, has helped the robust recovery in service sector jobs and helped to create a positive spin to the economy. Hence the conclusion, based on the Q2 2018 GDP data, is that the outlook for GDP growth remains positive on the back of robust employment growth and consumption, yet is structurally less balanced, as the contributions from net exports and investments are likely to drop as the business cycle matures.



Tiina Helenius

Chief Economist Finland

Finland and Emerging Asia

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