Finland: Growth loses steam in final quarter of 2020
GDP expanded 0.4% in seasonally-adjusted quarter-on-quarter terms in the final quarter of 2020, slightly above the previous estimate of 0.2%, but still slowing from Q3’s 3.2% jump. On an annual basis, GDP contracted at a more moderate pace (Q4: -1.7% s.a. yoy; Q3: -2.7% s.a. yoy). Consequently, the economy shrank 2.9% overall in 2020, contrasting 2019’s 1.3% growth.
The quarterly slowdown was largely due to a spike in domestic Covid-19 cases, which prompted the reimplementation of restrictive measures in Q4. As such, household consumption dropped, contrasting robust growth in the prior quarter (Q4: -1.5% s.a. qoq; Q3: +8.0% s.a. qoq), likely further weighed on by an elevated unemployment rate in the period (Q4: 8.2%; Q3: 7.6%). Moreover, fixed investment fell at a sharper rate in Q4 (Q4: -1.9% s.a. qoq; Q3: -0.9% s.a. qoq). More positively, government consumption grew at a stronger rate (Q4: +2.8% s.a. qoq; Q3: +2.2% s.a. qoq), supporting overall growth somewhat.
Turning to the external sector, the growth rate of exports of goods and services climbed to 8.8% in Q4 (Q3: +3.8% s.a. qoq). However, imports of goods and services declined 1.4% in the quarter, swinging from Q3’s 4.7% expansion. As such, the external sector contributed 4.1 percentage points to overall growth in Q4, notably contrasting Q3’s 0.4 percentage-point detraction.
Looking ahead, the economy is projected to remain in a somewhat weakened state during Q1 this year, as measures are kept in place to tame the spread of Covid-19. However, the recovery is set to pick up pace and strengthen from Q2, as the vaccine rollout should allow for the easing of restrictions at home and in key trading partners.
Commenting on possible setbacks to the economic recovery, Katharina Koenz, economist at Oxford Economics, noted:
“Finland has endured the pandemic considerably better than most other European economies […] but even without stringent containment measures having a direct impact, weak consumer confidence, high unemployment, uncertainty and a slowing trade recovery will all weigh on the recovery. We still expect restrictions to remain in place in Q1, keeping a lid on the economic recovery.”