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Fast Comment FinlandFinnish GDP grew by 2.2 percent in 2018

  1. Finnish GDP growth bounced back to 0.7 percent q-o-q in Q4 2018
  2. Domestic demand was the main contributor to growth whereas net exports were a drag on growth
  3. The business cycle has peaked
Finnish GDP growth bounced back to 0.7 percent q-o-q in Q4 2018
According to preliminary data, Finnish GDP growth accelerated in Q4 2018 as GDP grew by 0.7 percent q-o-q and 2.2 percent y-o-y. GDP growth for Q3 2018 remained at 0.4 percent q-o-q, but the y-o-y growth rate was revised downward to 2.1 percent (previously 2.4 percent). The annual growth rate in 2018 was 2.2 percent, which is somewhat weaker than broadly expected. Our forecast since April 2018 for 2018 annual growth has been 2.5 percent.
Domestic demand the main contributor to growth whereas net exports were a drag
The main contributor to annual GDP growth in 2018 was private domestic demand. Private consumption increased by 1.4 percent in 2018 whereas public consumption expenditure rose by 1.7 percent. Gross fixed capital formation, i.e. investments, showed a 3.2 percent increase in 2018. Within investments, growth was boosted by construction investments, where the rate of growth was 4.2 percent compared to the previous year. One exceptional feature was that inventories increased notably in Q3, thus contributing markedly to the y-o-y GDP growth. Instead, it looks as though net exports made a considerable negative contribution to GDP growth in 2018 due to markedly weaker export growth and slightly stronger import growth. The volume of exports increased by 1.5 percent y-o-y as export of goods grew only by 0.9 percent y-o-y. Export of services also showed weaker growth compared to 2017, but still increased by 2.9 percent y-o-y. The volume of imports expanded by 4.2 percent in 2018, whereas in 2017 it grew 3.8 percent. In Q4 2018, private consumption expanded by 0.9 percent from the previous quarter and by 1.4 percent from twelve months back while government consumption decreased by 0.9 percent q-o-q but increased by 0.3 percent y-o-y. Gross fixed capital formation grew by 1.9 percent q-o-q and 3.2 percent y-o-y. The volume of exports increased by 3.3 percent q-o-q, while the y-o-y growth rate was 1.3 percent. The volume of imports increased by 4.1 percent q-o-q and by 6.3 percent in y-o-y terms.
The business cycle has peaked
There is some uncertainty as to how to interpret the GDP data at this preliminary stage of data publication, as the size of statistical error in the final quarter of 2018 is very large. Furthermore, inventories increased massively in Q3 and then decreased only a little in the final quarter. There was a moderate pickup in export growth in Q4 as well as in fixed investments, yet for the entire year growth moderated clearly for both aggregates. We are convinced that the structure of Finnish GDP growth changed as we expected in 2018; it stemmed largely, if not entirely, from domestic demand, and we expect the final revised data to show a negative contribution from net exports. Positive in the data was that both consumption and investment growth improved at the end of the year. The fact that labour productivity has been weakening since mid-2017 does not bode well for Finnish investments in the future, and we expect investment growth to weaken this year.




Janne Ronkanen

Senior Economist


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