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Fast Comment FinlandUnder the surface, a weaker picture emerges

  1. Finland’s Q3 GDP increased by 0.4 percent from the previous quarter
  2. Net exports and investments a drag on growth
  3. Under the surface, a weaker picture emerges
Finland’s Q3 GDP increased by 0.4 percent from the previous quarter
Finnish GDP increased in Q3 2018 by 0.4 percent from the previous quarter and by 2.4 percent from one year ago. This was only a tad faster growth than the 0.3 percent q-o-q increase seen in Q2 2018. Total demand increased by 1.4 percent compared to the third quarter of 2017. The subdued development of demand growth was explained by change in inventories. The positive contribution from inventories to y-o-y GDP growth totalled 3.6 percentage points, and it was inventories of manufacturing industries that grew in particular.
Net exports and investments a drag on growth
The volume of exports decreased by 2 percent from the previous quarter and by 1 percent y-o-y. Compared to the third quarter of 2017, exports of goods decreased by 3 percent, but exports of services increased by nearly 3 percent. The volume of imports rose by 2 percent from a year ago and by half a percent from the previous quarter. Imports of goods grew by one percent and those of services by 5 percent y-o-y. In total, net exports shed 1.5 percentage points from overall y-o-y GDP growth in Q3, whereas in the second quarter of 2018, net export contribution was still positive 0.2 percentage points. Private consumption decreased in Q3 by 0.5 percent from the previous quarter, but grew by half a percent from a year ago and government consumption expenditure increased by 1 percent from the third quarter of 2017. Gross fixed investments contracted by 1 percent from both the previous quarter and from 12 months back. Private investments decreased by 2 percent, but public investments grew by 4 percent from one year ago. The volume of investments in machinery, equipment and transport equipment contracted by 10 percent from the third quarter of 2017. Investments in residential buildings grew by 3 percent and investments in non-residential buildings by 1 percent from one year ago. Investments in civil engineering contracted by nearly 2 percent from the previous year. Investments in intellectual property products including software, research and development grew by 2 percent from 12 months back.
Under the surface, a weaker picture emerges
The 2.4 percent y-o-y expansion in GDP from a year ago looks solid on the surface, but deeper analyses of demand aggregates reveal a much weaker picture. Growth was supported by a very large contribution from manufacturing inventories, which most likely will not be repeated in the coming quarters. Interpretation of large inventories is always difficult. Does it signify that demand for Finnish manufactured goods was weaker than anticipated, or are manufacturing firms anticipating stronger demand in the near future and producing to the warehouse? Looking at the almost 2 percent contraction in Finnish exports makes us think that the former explanation is more convincing. Large inventories may be related to a sudden stop of passenger car exports in August, which followed from German hold-ups related to a new vehicle emissions testing procedure (WLTP), which applied to existing models from September. Car companies have argued that they were not given enough time to prepare, leading to bottlenecks at testing centres, which caused major delays in production. It is worrying that, at this point of the business cycle, consumption and fixed investments were so weak. Private consumption and investments, in fact, contracted from the previous quarter. Furthermore, the fact that labour productivity contracted as well, and its growth has been trending down since mid-2017, does not bode well for Finnish investments in the future. Our 2018 growth forecast of 2.5 percent, that is weaker than consensus, looks spot-on.








Disclaimer

Tiina Helenius

Chief Economist Finland

Finland and Emerging Asia

tihe01@handelsbanken.se

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