Finland Economic Forecast

The economy’s rebound beat expectations in Q1, when it grew at the fastest quarter-on-quarter pace since Q2 2021, according to a flash estimate. Improving monthly economic activity in March will have outweighed weaker readings at the start of Q1. Moderating inflation, a lower unemployment rate and improving consumer sentiment compared to Q4 will have supported activity. Nevertheless, the improvement in GDP growth was likely underpinned by domestic activity, as merchandise exports declined quarter on quarter, weighed on by the EU slowdown. Turning to Q2, our panel expects the economy to be grinding to a halt. Harmonized inflation remained elevated at historical levels in April, with the pace of moderation slowing from previous months. An uptick in the unemployment rate in the same month and the ECB’s May rate hike should be further discouraging spending.

In April, harmonized inflation slowed to 6.3% from 6.7% in March, thanks to declining transport prices and moderating price pressures for food. The disinflationary trend should continue through Q4 2023 on higher interest rates, lower commodity prices and contracting domestic demand. Nevertheless, average inflation will remain above the ECB’s 2.0% target this year.