Finland: Economy records best result in more than a year in Q1
Revised data revealed that GDP bounced back at the outset of 2023, increasing 0.4% on a seasonally adjusted quarter-on-quarter basis in the first quarter. This contrasted the 0.5% contraction seen in the fourth quarter of last year. Q1’s reading marked the best result since Q4 2021.
Domestically, the improvement in output was spearheaded by increased public spending. Government consumption improved from the previous quarter’s slump, growing 3.0% in Q1 (Q4 2022: -0.9% s.a. qoq). Additionally, household consumption shrank less than in Q4 2022, declining 0.1% seasonally adjusted quarter on quarter in Q1 (Q4 2022: -0.7% s.a. qoq). Fixed investment also contracted at a softer pace of 2.0% in Q1 (Q4 2022: -3.0% s.a. qoq).
On the external front, exports of goods and services improved from the previous quarter’s downturn, registering 0.0% growth in Q1 (Q4 2022: -1.6% s.a. qoq). Conversely, imports of goods and services contracted at a sharper rate of 2.8% in Q1 (Q4 2022: -1.8% s.a. qoq), marking the worst reading since Q2 2020.
On an annual basis, economic activity returned to growth, expanding 0.4% in Q1, from the previous period’s 0.7% decrease.
Looking ahead, our panel sees the Finnish economy declining quarter on quarter in Q2. Above-target inflation and elevated energy costs will continue to stifle household spending. Meanwhile, weakening activity across the Eurozone, as well as sanctions on Russia and Belarus, will hinder growth in the external sector. That said, a strong labor market will support consumption somewhat. Tighter global financing conditions, volatility in energy prices and sticky inflation pose major risks to the outlook.
Juho Kostiainen, analyst at Nordea, commented on the outlook:
“The economy has surprised positively in the first months of the year, but the outlook for the rest of the year is clearly weaker. The rise in prices and interest rates will continue to put pressure on consumers, and lower housing demand will decrease the volume of construction. However, the increase in electricity output and the strong employment situation will support the economy.”