Consumption and construction likely to drive Finnish GDP growth in 2016

Finland has been in the economic doldrums for a decade and the nation's centre-right government is struggling to kick-start growth while keeping a lid on debt. The impact of the sharp decline in Nokia's former phone business was exacerbated by high labour costs and a recession in neighbouring Russia. The Finnish economy likely bottomed out last year but it is expected to recover slowly from a long stagnation.

Growth in Finland continues below potential. According to reports from the latest quarterly national accounts, Finnish GDP rose 0.8 percent in H1 16. Private consumption again made the biggest contribution, but significant gains were seen in construction also.  Consumption and construction are likely to remain the key drivers of growth in 2016, while improved competitiveness should help to boost exports and investment in 2017.

That said, the rise in domestic demand was largely catered for by imports and inventories and failed to support domestic output which rose sluggishly. As a result, decent employment growth which Finland was witnessing stalled in Q2. Statistics Finland said on Tuesday, the seasonally adjusted unemployment rate was 8.7 percent in August, unchanged from the revised numbers for the previous month. 

There is a record volume of money in the country's investment funds and bank accounts. The government has deferred plans for spending cuts while it waits for labour reforms to kick in. The Federation of Finnish Financial Services (FFI) said earlier in the month that UK's Brexit vote caused uncertainty on the market in early summer but the situation was calmer in August, with more people daring to make new investments.

Standard & Poor's affirmed its AA+ rating for Finland on Friday last week and revised the rating outlook to stable from negative, saying public finances would improve as the economy gradually recovers. The outlook for 2017 is promising thanks to growth in export markets and a new competitiveness pact, producing an internal devaluation.

"We have revised our forecast slightly for 2016-17 and expect Finnish GDP to grow roughly 1% annually. Growth is set to be driven mainly by consumption and construction in 2016, while improved competitiveness should help to boost exports and investment in 2017." said Danske Bank in a report.