(Bloomberg) -- Finland’s economy extended its rebound in the second quarter, adding to early signs of a more sustained recovery for one of Europe’s worst-performing economies.
Gross domestic product expanded a seasonally adjusted 0.4% in the April-to-June period after growing 0.2% in the previous quarter, according to a flash estimate by Statistics Finland on Wednesday. GDP shrank 0.7% from a year ago, adjusted for working days.
The Finnish economy has been one of Europe’s biggest laggards since before the pandemic. It has suffered from the freezing of trade with neighboring Russia after the Kremlin’s full-scale invasion of Ukraine while sluggish demand for Finland’s key exports by top trading partners Germany and Sweden slowed activity too. Domestic demand has also been burdened by a hit on household purchasing power from higher inflation and interest rates.
Many indicators still show that the Finnish economy is in a “fragile” state, Danske Bank A/S’s Chief Economist Pasi Kuoppamaki wrote in a note to clients, noting a “slight” improvement in the second quarter. Even as export markets have picked up and interest rates decline, a turn into “solid growth” will take time as a clear improvement in construction is not expected until 2025, he added.
The latest reading contrasts with the average projection of a full-year contraction of 0.2% in a Bloomberg survey of nine economists in June. The northernmost euro-area economy could see a rebound to 1.6% growth next year and 1.5% gain in 2026, the Finance Ministry said in June.
Some economists, including those at the ministry and at the Bank of Finland, expect the recovery next year to be boosted by private consumption amid slowing inflation and a decline in interest rates, as well as a pick-up in investments that’s boosted by a revival in construction.
Prime Minister Petteri Orpo’s government plans austerity measures totaling €9 billion ($9.9 billion) to balance public finances while seeking to spur growth and create 100,000 new jobs. The plan was criticized last week by Fitch Ratings, which cut outlook on the Nordic country’s AA+ credit rating, citing “insufficient” efforts to narrow its budget deficit.
(Adds Danske economist comment in 5th paragraph.)
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