Finnish 3Q GDP Disappointment Camouflages Enduring Economic Boom

(Bloomberg) -- Finland’s latest output data masks the fact that strong economic growth continues and forecasts may have to be raised, economists at the country’s biggest banks say.

While gross domestic product growth unexpectedly slowed in the third quarter, revisions by Statistics Finland reveal output has in fact expanded as expected -- only its timing has shifted, according to Nordea Bank AB, OP Group and Danske Bank A/S.

Finnish 3Q GDP Disappointment Camouflages Enduring Economic Boom
  • Third-quarter GDP grew 0.4 percent in the quarter and 3.0 percent in the year
  • Flash estimate had indicated a quarterly growth rate of 1.1 percent
  • Second-quarter GDP growth was revised up, to 0.8 percent in the quarter from 0.4 percent
  • Second-quarter revision puts annual growth at 3.6 percent, compared with 3.0 percent

“At first glance the numbers look disappointing. That impression is only superficial, however,” Nordea economist Pasi Sorjonen said in a note on Friday. “Taken together, the revised data now points to slightly higher annual growth for 2017 than our 3 percent forecast.”

Strong global growth and an ultra-loose monetary policy by the European Central Bank are giving a boost to the Finnish economy, which is highly dependent on exports. Confidence gauges among local businesses are at a decade high.

Upward revisions are common during periods of economic expansion, according to OP Group chief economist Reijo Heiskanen.

“Variations between quarters can be large in a small economy like Finland,” Heiskanen said. “One shouldn’t interpret this as indicating any significant slowdown in the economy -- it’s well in line with estimates.”

It’s not all good news, however.

Economists have in recent months been warning that an improving economy risks weakening the urgency of structural reforms. That may make it harder for Finland’s coalition government to push forward with its plans to counter the impact of an aging population and a contraction in the workforce.

Still, third-quarter data provides some clues on where the economy may be headed: The biggest drop in the three months through September was in the manufacture of electronic and chemical products, as well as in the information and communication sector. Exports contracted 2 percent in the quarter, while the expansion was led by gross fixed capital formation. Public and private consumption also grew.

“What caught my immediate attention was how weak industrial production was in the third quarter compared with the prior period,” chief economist Heidi Schauman at Aktia Bank Oyj said by phone. “Clearly foreign trade is something that we now need to worry about.”

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