Finland: Economy ends 2019 in contractionary territory
February 28, 2020
In the final quarter of 2019, the economy shrank 0.7% in seasonally- and calendar-adjusted terms from the previous quarter. This contrasted Q3 2019’s 0.4% expansion and marked the worst result since Q1 2015. Meanwhile, in year-on-year calendar-adjusted terms, the economy expanded a mere 0.4%, slumping sharply from Q3’s revised 2.0% growth (previously reported: +2.2%). As such, annual growth for the full year clocked 1.0%, marking the weakest expansion in four years and considerably slower than the 1.8% growth observed in 2018.
A significant downturn in domestic demand led the quarterly contraction. Private consumption fell 0.3% despite a sustained increase in real wages, contrasting the 1.3% expansion recorded in Q3. Government consumption also contracted, shrinking 1.2% in the quarter on the heels of a softer 0.5% fall in Q3. Meanwhile, fixed investment fell 0.1%, reflecting a slowdown in residential construction, but less sharply than the 1.7% contraction in Q3.
Turning to the external sector, metrics were somewhat more upbeat. Exports of goods and services rose 2.1% in Q4, although slowed somewhat from the 2.5% expansion recorded in Q3. Meanwhile, imports shrank 1.6% in the quarter, contrasting Q3’s 0.5% increase. Overall, the external sector contributed 1.6 percentage points to economic growth in Q4, nearly doubling the 0.9 percentage-point addition in Q3.
In 2020, the economy is expected to grow at a similar pace to 2019. Domestic demand is set to rebound as robust wage growth and a tight labor market aid private consumption. However, a weaker external sector will temper the uptick: Tepid Eurozone growth will continue to weigh on demand for Finnish products, while the coronavirus outbreak poses a key downside risk to exports.
Author: Stephen Vogado, Economist