Finland Economic Forecast

Newly released national accounts data showed that quarter-on-quarter GDP growth doubled to 0.6% in Q2. The acceleration was largely driven by fixed investment returning to growth. Moreover, the external sector contributed to the overall expansion, as imports of goods and services shrank, while exports flatlined. Less positively, growth in both public and private spending waned; higher interest rates and an increase in the unemployment rate were likely behind the slowdown. That said, softer harmonized inflation and less-downbeat consumer sentiment in Q2 likely prevented a steeper deceleration. Moving to Q3, the economy should be growing slower, although available data paints an upbeat picture: Economic activity expanded at a three-month high rate in July, when retail sales also rebounded month on month. Moreover, harmonized inflation eased further in July–August from Q2, boding well for purchasing power.

Harmonized inflation receded to a 22-month low of 3.1% in August (July: 4.2%). In the remainder of 2023, inflation should moderate slightly from current levels amid a high base effect, slowing activity and higher interest rates. Nevertheless, 2023’s average rate will still be more than double the ECB’s 2.0% target. Spikes in energy and food prices are upside risks.