Perspectives

Growth slows

th  
20  
EcoPerspectives // 4 quarter 2019  
economic-research.bnpparibas.com  
Finland  
Growth slows  
Finnish growth had only just regained some momentum in 2015 before slowing again in 2018. GDP growth is expected to weaken  
further in the quarters ahead. The country’s openness to trade exposes it to the deterioration of the global economic environment.  
Slower export growth and uncertainty linked to protectionist policies will undermine investment. Households, in contrast, should  
benefit from stronger wage growth. The unemployment rate has fallen to the lowest level since year-end 2008, and should continue to  
decline despite the slower pace of job creations.  
Finnish growth slowed sharply to 1.7% in 2018 (from 3% in 2017)  
and is expected to slow again this year. After rising 0.5% q/q in the  
first and second quarters, GDP is expected to increase by nearly  
1- Growth and inflation  
GDP Growth (%)  
Inflation (%)  
3
.0  
Forecast  
Forecast  
1.1  
1.2  
2
.8  
1.4% this year and by 1.3% in 2020.  
1.2  
1.7  
A less favourable international environment  
1.4  
1.3  
0.8  
0
.4  
Finland will continue to reap the benefits of reforms to boost  
competitiveness implemented in recent years. Its openness to  
1
world trade, however, exposes it to protectionist trade policies and  
the slowdown in the economic growth of its main trading partners,  
2
especially Germany . The deterioration of the international cyclical  
environment and the resulting sluggishness of non-resident  
investment will strain goods export momentum in the months ahead,  
especially since nearly a third of exports are comprised of capital  
goods. Moreover, there is still uncertainty over Brexit, the terms of  
which are still unknown.  
1
6
17  
18  
19  
20  
16  
17  
18  
19  
20  
Source: National Accounts, BNP Paribas  
In recent years, Finland managed to clean up its public finances  
thanks to fiscal consolidation measures and a rebound in economic  
growth. The fiscal deficit is expected to contract slightly again this  
year (from -0.7% of GDP in 2018). Ongoing growth and the increase  
in indirect taxes should help offset the decline in income taxes and  
social security contributions. The arrival of a coalition government  
led by the Social Democrats in June 2019 could change matters as  
of next year. Wanting to end austerity, they plan to increase  
spending significantly. Yet new tax increases and privatisation  
schemes will probably not suffice to totally offset the increase in  
spending at a time of slowing growth. Public debt fell back below the  
Non-resident investment will slow in the months ahead due to the  
slowdown in exports. Residential investment provided major support  
for growth between 2016 and early 2018, but will now grow more  
moderately due to the slowdown in real estate price increases.  
Private household consumption should slow down slightly. Job  
creations grew at a hefty pace of 2.7% y/y in 2018, but should slow  
this year due to the slowdown in economic growth. Consumer  
spending, in contrast, will still be one of the main growth engines.  
Even a small decline in the unemployment rate should ensure a  
slight upturn in wages, which have long been contained by the  
6
0% threshold in 2018 (to 58.9% of GDP), and should diminish  
“Competitiveness Pact”. Job market pressures have increased, and  
again in 2019 thanks to a primary surplus, low interest rates and  
nominal GDP growth. Thereafter, it could decline more slowly than  
expected.  
the unemployment rate, at 6.6% in July, has returned close to  
3
NAWRU , which the European Commission estimates at 6.5% in  
2
019. The growth of household disposable income will apparently  
offset the very slight acceleration in the inflation rate. Higher taxes  
on cigarettes and beverages should boost price inflation this year  
and in 2020. Yet these upside pressures will remain limited.  
Consequently, consumer price inflation, which was 1% y/y in August,  
should hold below the threshold of 2% y/y in 2019 and 2020.  
1
The “Competitiveness Pact”, signed between the government and its social  
partners in 2016, extended the annual number of working hours by 24 hours  
without a wage increase, froze wages in 2017, and reduced employer social  
welfare contributions.  
2
In 2018, 15.1% of merchandise exports were shipped to Germany.  
NAWRU, the Non-Accelerating Wage Rate of Unemployment, is the  
3
unemployment rate that does not trigger an acceleration in wages.  
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