Investment in Finland

Finland - Investment

Economy records sharpest contraction in over a decade in Q2

GDP dived 4.5% in seasonally-adjusted quarter-on-quarter terms in Q2, worsening from Q1’s contraction of 1.9% and marking the third consecutive quarter of shrinking economic activity. The contraction was the country’s worst quarter-on-quarter result since Q1 2009 as the economy felt the full brunt of the coronavirus pandemic.

Domestically, private consumption sank 6.9% in Q2, after decreasing 1.5% in Q1, amid social distancing and containment measures. Moreover, government consumption dipped 0.9% in Q2, swinging from Q1’s 0.7% increase. Fixed investment decreased 0.6% in seasonally-adjusted quarter-on-quarter terms, contrasting the 0.3% rise seen in Q1.

The external sector was hit hard by global trade disruptions and depressed demand. Exports of goods and services shrank at a faster pace of 8.7% in Q2 following Q1’s 7.0% drop, marking the sharpest contraction since Q1 2010. Meanwhile, imports of goods and services contracted at a significantly sharper rate of 9.8% in Q2 (Q1: -1.6% s.a. qoq).

On an annual basis, the economy plummeted 6.4% in Q2, following Q1’s 1.3% contraction and marking the worst result since Q4 2009.

The economy is expected to contract notably this year, due to trade disruptions and depressed domestic demand resulting from the pandemic. Private consumption is expected to remain constrained throughout the year, as consumer sentiment is still fragile. Meanwhile, fixed investment is also set to remain on pause due to economic uncertainty and pessimistic forecasts. Uncertainty regarding both the evolution of Covid-19 and recovery in major trading partners and markets clouds the economic outlook.

Our panelists see the economy contracting 6.3% in 2020, which is up 0.2 percentage points from last month’s forecast. In 2021, the panel projects that GDP will expand 3.8%.