Economy ends the year in the doldrums

Second release downwardly revises Q4’s print to a contraction: A revised national accounts release revealed that the economy shrunk 0.2% in Q4 in seasonally adjusted quarter-on-quarter terms. The reading was a deterioration from both Q3’s upwardly revised 0.5% print and Q4’s preliminary estimate of a 0.1% expansion. Moreover, it marked the worst result since Q3 2023 and was among the weakest in the Euro area. On an annual basis, GDP growth held at Q3’s 1.1% in Q4, the joint-best result since Q2 2022. Still, the Finnish economy contracted for the second straight year overall in 2024, recording a 0.2% decline (2023: -0.9%).

Fall in private spending undermines economy: Domestically, the quarterly downturn was largely driven by a 0.6% fall in private spending, which deteriorated from a 0.3% expansion in the prior quarter; the unemployment rate rose and real wage growth lost traction in Q4, hitting household budgets. More positively, fixed investment stagnated in the three months to December after shrinking 0.8% in Q3, benefiting from ongoing monetary easing by the ECB. Moreover, public spending rebounded 1.2% in Q4 (Q3: -1.2% qoq s.a.). On the external front, exports of goods and services fell at a sharper pace of 0.9% in Q4 (Q3: -0.4% qoq s.a.). Meanwhile, imports of goods and services swung into a 1.4% contraction in Q4 (Q3: +0.1% qoq s.a.). As a result, net trade contributed positively to the overall GDP reading.

Economy to rebound in 2025: Our panelists expect sequential GDP growth to return in Q1 2025, after which they project momentum to roughly stabilize through Q4. As a result, our Consensus is for the economy to rebound overall in 2025 and outpace its pre-pandemic 10-year average of 1.1%. Interest rate cuts should fuel recoveries in both fixed investment and private spending—the country has a large share of variable mortgages; household consumption should also benefit from robust real wage growth. On the external front, stronger EU demand will underpin a pickup in exports growth. The health of the German and Swedish economies, plus the extent of U.S. tariffs are key risk factors.

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