Finland GDP Q1 2016

Finland

Finland: Finland implements labor reform as Q1 GDP results show modest growth

June 22, 2016

According to preliminary data released by Statistics Finland on 3 June, the Finnish economy expanded a seasonally-adjusted 0.6% in Q1 2016 over the previous quarter, which represented a slight improvement from Q4’s revised 0.5% expansion (previously reported: +0.1% quarter-on-quarter). In annual terms, GDP registered a 1.2% rise in Q1 (Q4: +1.3% year-on-year).

The slight improvement was mainly driven by stronger private consumption, which increased by 0.6% following 0.3% growth in Q4. Growth was held back by lower public spending, which contracted 0.3%, contrasting a 0.7% expansion in the previous quarter. Fixed investment grew 0.4% in Q1 (Q4: +0.6% quarter-on-quarter).

On the external front, exports dropped a seasonally-adjusted 1.1% in Q1, which contrasted the 0.6% expansion observed in Q4. Imports fell 1.8% in Q1, which was a significant reversal from the 2.0% growth registered in Q4. As a result, the external sector’s net contribution to GDP growth advanced from minus 0.6 percentage points in Q4 to plus 0.3 percentage points in Q1.

While Q1’s GDP reading marked a slight uptick, exports remained sluggish. In recent years, Finnish exports and growth have been restrained by high labor costs and a rigid labor market, along with the recession in Russia, a slump in the paper industry and Nokia reducing activity in the country.

To tackle the problem of sluggish exports, the government has been negotiating with employees and trade unions for over a year to come to an agreement on reforming the labor market and cutting labor costs to boost Finnish exports. The administration’s efforts were fruitful and on 14 June a landmark competitiveness pact was signed. The deal intends to boost the economy by restoring the competitiveness of Finnish exports. In particular, the agreement freezes wages for one year, raises the annual working time by 24 hours without lifting wages, allocates a larger share of social security payments to employees and reduces holiday bonuses in the public sector, with most measures becoming effective in 2017. In turn, the government promised income tax concessions for employees in the 2017 budget worth a total of EUR 315 to EUR 515 million, depending on the pact’s coverage. Currently, the pact’s coverage includes around 85% of Finnish workers and the coverage could increase in the next two months if more unions sign up for the deal. Prime Minister Juha Sipilä said in June that the current coverage would allow for tax concessions of up to EUR 415 million.

The deal marks an important step forward to reform Finland’s rigid labor market and will likely cut labor costs and boost competitiveness notably by the end of next year, thus supporting exports, GDP growth and employment. Critics, however, point out that the final agreement might be insufficient to fully restore Finland’s competitiveness and that the government did not make more progress on moving from a centralized to a company-level wage negotiation system.

FocusEconomics Consensus Forecast panelists are almost in line with the Central Bank’s forecast and expect the economy to expand 0.7% in 2016, which is unchanged from last month’s projection. For 2017, the panel sees GDP expanding 1.1%.


Author: Teresa Kersting, Economist

Sample Report

Looking for forecasts related to GDP in Finland? Download a sample report now.

Download

Finland GDP Chart


Finland GDP Q1 2016 2

Note: Quarter-on-quarter changes of seasonally-adjusted GDP in %.
Source: Statistics Finland and FocusEconomics Consensus Forecast.


Finland Economic News

  • Finland: Growth holds steady in Q2; government proposes higher spending in 2020

    August 30, 2019

    A second GDP release revealed the economy grew a revised 0.5% in Q2 2019 in seasonally-adjusted quarter-on-quarter terms (previously reported: +0.9% quarter-on-quarter), which was unchanged from Q1’s revised figure of 0.5% (previously reported: +0.6% quarter-on-quarter).

    Read more

  • Finland: Current account surplus widens in June

    August 15, 2019

    The current account balance improved to a EUR 0.8 billion surplus in June from the revised EUR 0.6 billion surplus in May (previously reported: surplus of EUR 0.3 billion). In the 12 months leading up to June, the current account balance totaled a EUR 1.5 billion deficit, marking an improvement over the EUR 3.4 billion deficit in May. The trade balance improved to a EUR 0.4 billion surplus in June from the EUR 0.1 billion surplus in May.

    Read more

  • Finland: Economic activity growth surges in June

    August 14, 2019

    Economic activity grew a working-day adjusted 2.2% in June compared to the same month a year earlier, up from May’s 0.8% increase.

    Read more

  • Finland: Inflation slows in July

    August 14, 2019

    Consumer prices fell 0.3% in July compared to the previous month, contrasting the 0.1% increase in June.

    Read more

  • Finland: Economic growth slows in May

    July 16, 2019

    Economic activity grew a working-day adjusted 0.8% in May compared to the same month a year earlier, down from April’s substantially revised 1.8% growth reading (previously reported: +2.8% year-on-year).

    Read more

More news

Search form