Finland: Economic growth slows in Q2 after a good start to 2018
Although the economy expanded for the 11th consecutive quarter, economic growth slowed in the second quarter of 2018 compared to the first quarter. According to GDP data released by Statistics Finland, the economy grew 0.3% in seasonally-adjusted quarter-on-quarter terms in Q2, substantially down from Q1’s revised growth of 1.2% (previously reported: +1.3% quarter-on-quarter). In year-on-year terms and adjusting for working days, the expansion slowed to 2.5% in Q2, down from Q1’s revised reading of 2.8% (previously reported: +3.0% year-on-year).
Weaker quarter-on-quarter growth in Q2 was underpinned by a slowdown in government consumption and fixed investment growth. Government consumption expanded 0.5% in Q2, down from 1.7% in Q1. Fixed investment increased 1.9%, down from 3.9% in the previous quarter and despite high business confidence and low interest rates. Meanwhile, private consumption growth accelerated to 0.7% in Q2, up from 0.4% in Q1. This was likely due to falling unemployment—the jobless rate fell to a near one-decade low in June—and elevated consumer confidence.
Exports of goods and services rose 2.0% in Q2 from the previous quarter, contrasting the decrease of 1.2% in Q1. Imports also rebounded in Q2, growing 1.4% and contrasting the 0.8% contraction in Q1. The external sector consequently contributed 0.3 percentage points to GDP growth in Q2, swinging from the 0.2 percentage-point deduction in Q1.
Despite the slowdown in Q2, the economy performed well in the first half of this year. Going forward, historically-loose monetary policy will continue to support lending in Finland this year, which, along with high business confidence, should support fixed investment growth. Private consumption, for its part, will likely benefit from the tight labor market. In terms of the external sector, exports should continue to benefit from increased international competitiveness on the back of Finland’s 2016 Competitiveness Pact. On the other hand, the government’s fiscal straitjacket will limit its consumption growth.