Finland: GDP records sharpest contraction since Q2 2020 in Q3
GDP dropped 0.2% on a seasonally adjusted quarter-on-quarter basis in the third quarter, contrasting the 1.0% expansion seen in the second quarter. Q3’s reading marked the worst in over two years, when the Covid-19 pandemic ravaged the economy. The downturn was largely driven by a steep contraction in domestic demand, which outweighed a robust expansion in exports.
Private consumption contracted 0.3% in Q3, marking the worst result since Q4 2020 (Q2: +2.0% s.a. qoq). Deepening consumer pessimism—which hit the lowest level since the series began in 1995 in September—and a rising unemployment rate discouraged household spending in the face of decades-high inflation. Meanwhile, government consumption growth softened, expanding 0.2% (Q2: +0.9% s.a. qoq). More positively, fixed investment rebounded, growing 2.1% in Q3, contrasting the 2.0% decrease recorded in the previous quarter. Virtually all subsectors returned to growth, with the most notable expansions registered in investment in residential buildings, weapon systems, and civil engineering and land improvements.
On the external front, exports of goods and services growth accelerated to a seasonally adjusted quarter-on-quarter 1.5% in the third quarter, which marked the best reading since Q4 2021 (Q2: +1.1% s.a. qoq). Conversely, imports of goods and services deteriorated, contracting 1.2% in Q3 (Q2: +3.6% s.a. qoq).
In contrast to the quarterly contraction, the economy expanded 1.5% year on year in Q3, compared to the previous quarter’s 2.7% growth.
Looking ahead, our panel sees the Finnish economy on the precipice of a shallow recession—a prognosis echoed by the Finnish Central Bank. Inflation continued rising in October and November, which should be exhausting household budgets and discouraging spending; elevated energy costs over the winter are set to keep price pressures elevated in the coming months. In addition, the cutoff of Russian gas earlier in 2022 seems to be still taking a toll on industrial output ahead of the winter energy crunch. Lastly, the loss of trade with Russia and Belarus will likely be exacerbated by an EU-wide slowdown, boding ill for the external sector.