Finland: GDP growth moderates in Q3
November 30, 2021
Economic growth lost steam in the third quarter, with GDP increasing 0.8% on a seasonally-adjusted quarter-on-quarter basis (Q2: +2.2% s.a. qoq). The reading was slightly below the 0.9% expansion recorded in the preliminary estimate. On an annual basis, economic growth came in at 4.2% in Q3, down from the previous quarter's 8.5% increase, but up from the 4.0% expansion logged in the preliminary national accounts release. The result marked the second-strongest growth since Q1 2011, but was supported by a low base effect.
Domestically, the quarterly reading was driven by a slowdown in household spending, which weakened to a 1.3% increase in seasonally-adjusted quarter-on-quarter terms in Q3 following the 2.0% expansion logged in Q2. That said, higher employment levels and increased nominal wages and salaries bolstered consumers’ optimism, which in turn likely limited the moderation in spending. Meanwhile, government spending growth softened to 0.4% in Q3 (Q2: +0.6% s.a. qoq). Lastly, fixed investment swung to a 3.1% contraction in the quarter, marking the worst reading since Q1 2010 (Q2: +1.5% s.a. qoq), largely driven by a decline in public investment.
On the external front, growth in exports of goods and services sped up to 4.1% on a seasonally-adjusted quarter-on-quarter basis in the third quarter (Q2: +1.0% s.a. qoq). In addition, growth in imports of goods and services accelerated to 2.9% in Q3 (Q2: +2.4% s.a. qoq), marking the best reading since Q3 2020. Consequently, the external sector contributed 0.5 percentage points to the overall result, contrasting the prior quarter’s 0.5 percentage-point subtraction.
Incoming data for the final quarter of the year is mixed. Economic sentiment increased to historic highs in October and November and the unemployment rate dropped to a 19-month low in October, which bodes well for spending at the tail end of the year. However, higher price pressures could cap the overall improvement, while the new Omicron variant could weigh on sentiment and prompt authorities to tighten restrictions ahead, despite the high vaccination rate. Further ahead, supply chain disruptions are likely to continue in the early months of 2022, dragging on production.
Author: Marta Casanovas , Economist