Finland: Economy rebounds in Q3, recording best result since Q2 2010
November 27, 2020
GDP rebounded strongly in the third quarter, growing 3.3% on a seasonally-adjusted quarter-on-quarter basis and contrasting the 3.9% contraction recorded in the second quarter. Q3's reading marked the strongest growth in over two decades, largely reflecting the gradual easing of pandemic-related restrictions during the quarter. Meanwhile, on an annual basis, GDP contracted 2.7% in Q3, easing from Q2’s 6.2% fall.
Domestically, household spending rebounded in the third quarter, growing 2.9% in seasonally-adjusted quarter-on-quarter terms, which marked the best reading since Q1 2012 (Q2: -5.3% s.a. qoq). However, the print came amid a strong increase in the unemployment rate in the quarter (Q3: 8.4%; Q2: 6.7%), likely capping the upturn. Government spending also rebounded, albeit at a much softer pace (Q3: +0.4% s.a qoq; Q2: -1.8% s.a qoq), while fixed investment continued to contract, although at a much slower pace than in the prior quarter (Q3: -0.3 s.a qoq; Q2: -1.5% s.a qoq).
Externally, exports of goods and services increased 2.6% on a seasonally-adjusted quarterly basis in the third quarter, which contrasted the second quarter's 11.1% dive. Additionally, imports of goods and services rebounded, growing 4.7% in Q3 (Q2: -12.6% s.a. qoq). As such, the external sector detracted 0.9 percentage points from overall growth for Q3 (Q2: +0.9 percentage points).
The economy is expected to contract notably this year due to the fallout from the pandemic. Despite Q3’s positive results, the second wave of infections has likely hampered activity once again, erasing some of the progress made in the quarter. Recovery is expected to be somewhat slow, potentially encouraging households to increase their savings, which, coupled with the high unemployment rate, will likely cap private spending ahead.
This is something Rosie Colthorpe, European economist at Oxford Economics, agrees with, noting the risks clouding the outlook:
“Although Finland has imposed fewer virus-related restrictions than many other European countries, the services sector is still likely to have a tough Q4. Weak consumer confidence and uncertainty about the outlook are likely to lead to households holding higher precautionary savings, weighing on private consumption. High unemployment will also hold back spending.”
Author: Marta Casanovas , Junior Economist