Finland’s Q1 GDP growth significantly revised down; export growth to remain low in Q2

The starting point for 2016 for Finland came out to be softer than anticipated as the first quarter growth was significantly revised downward. So far, the data for second quarter has been mixed. Foreign trade has been disappointing as exports of goods remained weak in April and May, whereas imports of goods increased. On the bright spot, domestic demand has been quite strong, with private consumption and construction leading.

The first quarter GDP growth of Finland was revised down from 0.6 percent to 0.1 percent. Moreover, further back, the first quarter 2015 growth now indicates a drop and an outright might recession (earlier +0.3 percent quarter-on-quarter growth).

“Extending the revised GDP history with our latest forecast profile from March yields a +0.7 percent growth estimate for 2016. This is reasonably close to our +0.5 percent March forecast”, said Nordea Bank in a research report.

The change in the value of goods exports on year-on-year terms in negative for the last 10 months. April had recorded a decline of 10.6 percent, while May registered a drop of 6.5 percent. Lower export prices partially explain the decline, noted Nordea Bank. Without a significant improvement in June, second quarter is likely to be weak.

Meanwhile, on the positive side, consumer sentiment recovered steadily and was more than the long-term average in the May to July period. According to the preliminary data, the retail sales volumes rose in the second quarter by over 2 percent year-on-year. Car sales appeared to have been strong with new passenger car registrations up in the first half of 2016 by nearly 15 percent on annual basis.

Moreover, construction is gaining. The rate of new production quickened to 22 percent year-on-year in May. Housing production led the market at 27 percent growth. Accumulated construction permits rose over 20 percent on year-on-year basis. Therefore the short-term outlook continues to be positive in construction investment. But the outlook for other investments continues to be weak, added Nordea Bank.

In the meantime, labor market is unlikely to witness any major improvement. The trend in employment is fat, while the number of unemployed is falling according to the Labor Force Survey. On the other hand registered unemployment remains stable.