Finnish economy steamed ahead stronger than expected in Q1. GDP rose 2.7 percent y/y after rising 1.4 percent in FY2016. Leading indicators continue to be elevated. Finnish GDP is still well below its previous peak and the economy is cruising towards the potential output. Future growth depends on structural reforms and labour participation, which is well below other Nordic countries. The main risks are related to the global outlook.
Domestic risk are partly political. The Finns Party, one of the coalition government parties, will elect a new chairman and under new leadership cooperation with other ruling parties may become more strained. Private consumption continues to grow 2 percent in 2017.
Rising inflation and low wage growth challenge purchasing power, but better employment, high confidence, an income tax cut and cheap debt have kept consumption on a growth track. Housing market is divided geographically and by type of housing. A demographic shift towards smaller families and migration to growth centres has increased demand for small apartments. Strong demand has raised prices and fuelled a construction boom in Helsinki and a few other towns, while dwelling prices are falling in some parts of the country.
Exports of goods and services rose 8.8 percent in Q1 and business surveys imply growing order books. The outlook is better thanks to growth in export markets, especially Russia, improving price competitiveness, several large ship orders and new production facilities in forest and automotive industries. Growing demand, higher confidence and low interest rates have boosted manufacturing investment too.
"We have revised our forecast higher and expect Finnish GDP to grow 2.8 percent in 2017 and slow down to 1.5 percent in 2018. Consumption continues brisk growth while manufacturing exports and investment also add to rising GDP," Danske Bank commented in its latest research report.