Finnish economy keeps quarterly pace in export-led rebound

Finland’s economy grew largely in line with earlier projections in the second quarter, cementing the hopes that the northernmost euro area member is on track to more sustained recovery.

Gross domestic product expanded 0.3% in the quarter through June from the previous three-month period, when it grew by a similar margin that was revised up from an earlier assessment, Statistics Finland said on Friday, citing data adjusted for seasonal swings. The second-quarter expansion, mainly powered by exports, was slightly smaller than the 0.4% growth indicated by a flash estimate earlier this month.

The latest GDP reading paints a less gloomy picture for the Finnish economy that is expected by most analysts to keep shrinking this year after one of Europe’s worst performances since before the pandemic. OP Group economists reiterated earlier this month their projection of a 0.5% full-year contraction while estimates compiled by Bloomberg foresee a 0.2% fall. 

While growth in the Finnish economy has now “clearly” started there are no grounds for “great celebration” yet as the economy still contracted from a year ago, said Petri Malinen, an economist at Suomen Yrittajat, an organization representing small and medium-sized enterprises.

An 8.1% increase in the volume of exports from the previous quarter “strengthens” the picture that the recovery in Finland’s main markets is starting to be visible with the local industry now gradually gaining momentum, Malinen added. 

The Nordic economy remains fragile after being hurt by the freezing of trade with neighboring Russia as a result of the Kremlin’s full-scale invasion of Ukraine. Sluggish demand for Finland’s key exports by top trading partners Germany and Sweden is also a drag. Yet most economists expect a recovery next year on the back of rising purchasing power due to slowing inflation and interest rate cuts by the European Central Bank. 

Private consumption still declined 1.1% in the second quarter from the January-to-March period along with a 2.1% drop in investments while public spending grew 1.2%, the statistics office said. A separate statement from the office on Friday showed retail sales declined 2.1% on year in July, the most in three months, confirming household demand remains weak.

Finnish output could see a rebound to 1.6% growth next year and 1.5% gain in 2026, the Finance Ministry said in June. That’s largely in line with median forecasts of 1.7% and 1.5%, respectively, based on data compiled by Bloomberg.

Prime Minister Petteri Orpo’s government has announced €9 billion worth of austerity measures to fix the Nordic nation’s public finances while seeking to spur growth and create 100,000 new jobs in the labor market with 2.6 million people employed. The plan to narrow the budget deficit was criticized as “insufficient” earlier this month by Fitch Ratings, which cut outlook on the country’s AA+ credit rating.