Finland: Growth slumps in Q1
Economic growth slowed to 0.2% in seasonally-adjusted quarter-on-quarter terms in Q1 2019, according to a second GDP release by Statistics Finland. This was down substantially from both the 0.6% growth estimate previously reported and the revised 0.5% growth rate in Q4 2018 (previously reported: 0.8% quarter-on-quarter). In year-on-year calendar-adjusted terms, the economy expanded 1.2% in Q1, which was markedly lower than both the previously reported 2.2% increase and Q4’s revised 2.2% rise (previously reported: +2.3% year-on-year).
The slowdown in Q1 came on the back of a 1.2% decrease in private consumption, which contrasted a 0.7% rise in Q4, likely owing to heightened consumer pessimism. Moreover, fixed investment fell 0.3% in Q1, contrasting the 1.7% increase in Q4, amid lower business confidence. Meanwhile, government consumption rose 2.7% in Q1, contrasting the 0.3% fall in Q4.
Turning to the external sector, exports of goods and services rose 3.0% in Q1. Although this was down slightly from the 3.3% rise in Q4, the reading nevertheless underlines that Finnish exports are faring well despite rising global trade protectionism. Imports, meanwhile, declined 5.7%, contrasting the 3.8% increase in Q4. Overall, the external sector contributed 3.8 percentage points to economic growth in Q1, contrasting the 0.3 percentage-point deduction in Q4 and representing the largest contribution in nearly a decade.
Looking at this year as a whole, the Bank of Finland recently said the economy “will continue to grow, but more moderately than in the past two years and at a considerably slower pace than prior to the onset of the financial crisis in 2008”. The Bank sees the economy slowing to 1.9% this year, before abating further and “converging to its long-term potential rate, at just under 1.5%”. The European Commission broadly concurs with this view and expects private consumption to “remain the driver of growth […] thanks to the expected rise in household labor and non-labor income”. On the other hand, the tight annual budget set by acting Prime Minister Juha Sipila’s center-right administration will weigh on government consumption growth.