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). In year-on-year calendar-adjusted terms, the economy expanded 1.2% in Q2 (previously reported: +1.8%), which was up from Q1’s 0.9% reading.
Steady quarter-on-quarter growth in Q2 came on the back of 0.9% growth in private consumption (Q1: -1.0% quarter-on-quarter) and 0.5% growth in fixed investment (Q1: -0.8% qoq). Private consumption likely benefited from the joint lowest unemployment rate in Q2 in over a decade, which has helped to sustain rising real wages, while both consumer spending and fixed investment benefited from historically low interest rates. On the other hand, government consumption shrank 0.3% in Q2, contrasting a 2.5% expansion in Q1. Moreover, the external sector subtracted 1.4 percentage points from headline growth in Q2, after contributing 3.0 percentage points in Q1. This was due to a 0.5% drop in exports of goods and services (Q1: +2.4% qoq), whereas growth in imports of goods and services rebounded 2.8% (Q1: -4.4% qoq).
In other news, the government proposed a 2020 budget of EUR 57.0 billion on 14 August, which is up 2.3% from 2019’s budget of EUR 55.7 billion. The deficit is projected at EUR 2.3 billion (2019: EUR 1.7 billion). This expansionary move marks a change in fiscal course for Finland, following tight government spending in recent years as part of an effort to strengthen public finances. Laxer government spending should support economic growth next year.
Author: Edward Gardner, Economist