Finland: Economy records sharpest contraction since Q1 2015
May 29, 2020
GDP fell at a steeper rate of 0.9% on a seasonally-adjusted quarter-on-quarter basis in Q1 2020, coming in below the 0.6% contraction tallied in Q4 2019 and marking the second successive quarter of contracting activity. As such, Finland entered into a recession, with Q1’s reading marking the worst result since Q1 2013.
The external sector drove the downturn, subtracting 1.8% from the overall reading. Exports of goods and services shrank 7.4% in Q1, marking the sharpest contraction since Q1 2010 (Q4: +1.3% s.a. qoq), while imports of goods and services contracted 3.5% in Q1 (Q4: -1.9% s.a. qoq).
Domestically, private consumption held up relatively well in the quarter, falling at softer pace of 0.6% in Q1 compared to a 0.7% drop in Q4. Public consumption accelerated to a 1.0% increase in Q1(Q4: -1.0% s.a. qoq) on the back of governmental stimulus measures taken in the face of widespread pandemic-related disruption to business activity. Meanwhile, fixed investment fell 0.5% in the first quarter, contrasting the fourth quarter's 0.3% expansion.
On an annual basis, the economy contracted 1.1% in Q1, swinging from Q4's 0.5% growth. Q1’s reading marked the worst result since Q1 2013.
The economy is expected to contract markedly this year, driven by an acute downturn in domestic demand: Private consumption is set to remain constrained throughout 2020 as nervous consumers reign in discretionary spending, while heightened economic uncertainty places fixed investment on pause for the time being. Meanwhile, the rate of economic recovery in key markets is a major risk to the external sector, further clouding the outlook.
Author: Stephen Vogado, Economist