Economy records best reading in almost one year in Q1

A revised national accounts release confirmed that the economy bounced back in the first quarter, growing 0.2% on a seasonally adjusted quarter-on-quarter basis, contrasting the 0.7% contraction logged in the fourth quarter of last year. Q1's reading marked the best result since Q2 2023 but fell short of the preliminary estimate of 0.5%. On an annual basis, economic activity declined 1.6% in Q1, matching the previous quarter's result.

The quarterly upturn chiefly reflected faster household spending growth, which returned to growth after Q4 2023’s flat reading: Private consumption rose 1.0% seasonally adjusted quarter on quarter in the first quarter, marking the best reading since Q2 2022. Plummeting inflation and improving consumer sentiment in the quarter likely underpinned the expansion. That said, public spending growth slowed to 0.5% in Q1 (Q4 2023: +2.6% s.a. qoq). Moreover, fixed investment contracted at a sharper rate of 4.2% in Q1 compared to Q4 2023’s 0.5% decline, marking the worst result since Q1 2010. On the external front, exports of goods and services fell 5.4% in Q1 (Q4 2023: -0.6% s.a. qoq) due to goods exports swinging into contraction, marking the worst result since Q2 2020. Conversely, imports of goods and services fell 1.5% in Q1 (Q4 2023: 0.4% s.a. qoq).

Our Consensus is for sequential growth to accelerate in Q2, though our panel expects the economy to post a shallow contraction over 2024 as a whole. Cooling public spending growth, plus contracting exports and fixed investment—amid still-tight financing conditions—will weigh on GDP growth this year.

Mihkel Nestor, analyst at the SEB group, commented: “Finland’s resilience to high inflation and rising interest rates has come to an end, as a sharp decline in exports and capital expenditure has taken its toll on the economy. The path to recovery will not be swift, and in 2024 GDP will contract by an additional 0.2 percent. While industrial output has held up better than the euro area average, the slump in new orders continues to stifle business. There has been improvement in the important paper and pulp industry, but the downturn is now impacting electronics production, another vital sector. Despite indications that the worst may be over, weak demand will linger, posing challenges for Finland’s late cyclical manufacturing sector.” Dankse Bank’s Pasi Kuoppamäki added: “Finland’s economy turned somewhat unexpectedly towards growth already in the first quarter of 2024, but the first half of the year will remain weak as a whole due to the port strike, production stoppages, shrinking housing production and sluggish consumer demand.”

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