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Fast Comment FinlandStrong GDP growth in Q1

  1. Q1 GDP grew by 1.2 percent q-o-q and 3.1 percent y-o-y
  2. Domestic demand made the biggest contribution to GDP growth, net exports turned negative
  3. Strong but gradually moderating growth likely to continue
Q1 GDP grew by 1.2 percent q-o-q and 3.1 percent y-o-y
The preliminary data for Q1 2018 GDP showed that the strong momentum in the Finnish economy is continuing. Finnish GDP grew by 1.2 percent q-o-q and 3.1 percent y-o-y in Q1. The statistics released by Statistics Finland were somewhat stronger than the preliminary monthly GDP indicator suggested. Also the GDP data for Q4 2017 was revised upward to 0.9 percent q-o-q (was 0.6) and 2.9 percent y-o-y (was 2.3).
Domestic demand the biggest contributor to GDP growth, net exports turned negative
The main contributor to the y-o-y GDP growth was domestic demand. The volume of private consumption increased by 0.3 percent from the previous quarter and by 2.3 percent from twelve months back, while government consumption expanded by 1.4 percent q-o-q and 2.6 percent y-o-y. Gross fixed capital formation grew by 3.7 percent q-o-q and 7.9 percent y-o-y. Within investments, growth was boosted by investments in machinery, equipment and transport equipment, where the growth rate was 16 percent compared to the previous year. In addition, investments in residential buildings increased by 10 percent from one year ago. However, net exports contributed negatively to the quarterly GDP growth in Q1. The volume of exports decreased by 1.1 percent q-o-q, while the y-o-y growth rate was a mere 0.3 percent. The volume of imports contracted by 0.5 percent q-o-q but increased by 2.7 percent in y-o-y terms.
Strong but gradually moderating growth likely to continue
Finnish GDP growth accelerated further in the beginning of 2018. The preliminary quarterly growth rate of 1.2 percent is the highest since Q4 2010. In Q2 2018, Finland is likely to finally surpass the pre-financial crisis level from Q4 2007. In particular, strong domestic demand drove the economy in Q1. Consumption is gaining momentum, as we expected, although in Q1 it was bolstered by government consumption. However, the growth in investments was somewhat stronger than we expected. Investments in machinery, equipment and transport equipment continue to outperform and also housing investments showed stronger growth than expected. Rapid urbanisation and low interest rates are still pushing up residential construction. However, the latest statistics indicate that new housing starts are likely peaking in H1 this year. Therefore, we see no reason to change our forecast of modestly slowing investment growth this year. The volume of exports weakened significantly in Q1, and as the strong domestic demand supported imports, the contribution from net exports turned negative. As the global business cycle shows some signs of maturing, we believe the strongest momentum in Finnish exports is behind us. In the coming quarters, this will probably reflect more modest growth in investments too. In summary, we draw a conclusion that the released Q1 GDP numbers support our GDP forecast of 2.5 percent in 2018.




Janne Ronkanen

Senior Economist


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