Finland: The economy accelerates in Q4, ending modest year on a strong note
February 28, 2019
The economy grew 0.7% in seasonally-adjusted quarter-on-quarter terms in Q4 2018, up from Q3’s 0.4%. In year-on-year working-day adjusted terms, the economy expanded 2.2% in Q4, up slightly from 2.1% in Q3. However, for the whole year, growth cooled to 2.2% in 2018, down from 2.7% in 2017.
Higher quarter-on-quarter growth in Q4 was underpinned by a swing in private consumption, which rose 0.9% after contracting 0.3% in Q3, and a turnaround in fixed investment, which increased 1.9% after decreasing 0.9% in Q3. On the other hand, government consumption decreased 0.9%, contrasting the 0.2% growth in Q3. Looking beyond these numbers, private consumption was likely boosted by a tightening labor market in Q4, as the unemployment rate in December fell to the lowest level since November 2008. Fixed investment was likely supported in Q4 by the continued low-interest-rate environment, although weakening business confidence suggests investment levels were below potential. Meanwhile, the fiscal straitjacket donned by the government ensured another subdued government consumption reading.
On the external front, exports of goods and services increased 3.3% in Q4, contrasting the 1.4% decrease in Q3. Imports, meanwhile, increased 4.1% in Q4, up from 0.7%. Overall, the external sector detracted 0.4 percentage points from economic growth in Q4, less than the 0.9 percentage-point deduction in Q3.
Going forward, private consumption should support economic growth in 2019 thanks to a strengthening labor market. In addition, historically-loose monetary policy should continue to boost the economy by feeding into private consumption and fixed investment growth. However, government consumption growth is likely to slow considering the tight budget set out by the center-right administration. In terms of exports, an economic slowdown in the Eurozone could undermine growth potential.
Author: Edward Gardner, Economist