Finnish gross domestic product shrank in December by a record 4.8 percent year-on-year, preliminary data showed on Friday, and economists said the accelerating drop pointed to a deep 2009 recession. Economists said the December figures may be revised up when Statistics Finland (SF) reports fourth-quarter GDP at the end of this month, but the picture was bleak nonetheless and suggests Finland may be faltering worse than its eurozone peers.
The 15-member euro-area economy underwent its biggest contraction on record in the fourth quarter, shrinking 1.5 percent from the previous quarter and 1.2 percent from a year earlier, Eurostat reported on Friday. The poor December data suggested that the 180 billion-euro ($232.5 billion) Finnish economy, until now among the soundest in the euro zone, may have shrunk by close to 2 percent in the final quarter of 2008 after falling also in November.
That would pull full-year 2008 GDP growth down to around 1 percent, Pohjola's chief economist Anssi Rantala said. Finland's economy grew by 4.2 percent in 2007. Finance Minister Jyrki Katainen has warned the economy could shrink more than 2 percent this year. "This indicates that October-November GDP will be very weak," said Rantala, noting monthly GDP figures are preliminary and based on a sample of information, not a precise estimate.
The monthly drop in GDP - the largest on record since SF started the series in 1996 - accelerated from a revised year-on-year contraction of 3.9 percent in November. Reijo Heiskanen, chief analyst at Nordea in Helsinki, said: "The GDP figures look very weak, and taken at face value they indicate a very deep drop." Heiskanen said his forecast has been for the Finnish economy to perform in line with the euro zone in the fourth quarter, but the December figures showed Finland may have lagged.
With around 45 percent of GDP coming from exports, mainly electronics, forest products and metal and engineering goods, the Finnish economy is highly vulnerable to the global slowdown. Rantala said the December GDP drop was not entirely unexpected after weak export, industry output and retail data.
"In the fourth quarter of last year the financial crisis - here in Finland and abroad - clearly entered a new phase with an impact on the real economy," he said. "If the fourth quarter (GDP) was down a few percent it will drop 2008 GDP down to around one percent," Rantala said.
"That suggests that this year's growth figures will be clearly negative ... The early part of the year will be very weak." Finnish inflation eased in January, which Rantala said was a rare respite for Finnish consumers. The annual rise in the consumer price index slowed to 2.2 percent in January from 3.5 percent in December. Consumer prices fell from December to January by 0.2 percent.