Finland Economic Forecast

After the economy shrank in Q4 due to depressed domestic demand, quarter-on-quarter GDP likely contracted for the third consecutive quarter in Q1 2023. On average, in January–February, economic activity declined on a calendar-adjusted monthly basis, with all sectors of the economy shrinking. Additionally, merchandise exports growth in January–February softened from the prior quarter amid subdued external demand. The European Central Bank’s interest rate hikes in February–March likely also constrained activity. More positively, month-on-month retail sales rebounded on average in the first two months of the quarter compared to Q4, and the unemployment rate declined steadily through March. This, coupled with cooling price pressures throughout the quarter, bodes well for household spending. In other news, on 4 April, Finland became the 31st member of NATO.

In March, harmonized inflation waned to 6.7% from February’s 7.9%: Lower energy prices softened price pressures for housing and utilizes, and transport. Our panel sees the disinflationary trend continuing this year on higher interest rates, softer commodity prices and depressed domestic demand. That said, average inflation will remain above the ECB target of 2.0% this year.