Etla has updated its forecast: Finland’s GDP will shrink by 8 per cent this year

Etla has updated its forecast in May and now estimates that Finland’s GDP will shrink by 8 per cent this year and rebound to 4 per cent growth next year. The value added of the total industry is estimated to drop by about 9 per cent this year while the value added of the service sectors will fall by slightly less than 7 per cent. Private services will decrease by about 10 per cent. Output in both industry and services is estimated to shrink by about 8 per cent this year. According to the current estimate, the value added and output of the total industry will grow by about 5 per cent next year, while the corresponding figure for the service sectors is 3 per cent. Assessing the impact of the corona pandemic on the development of individual industries is very challenging, so the forecasts presented in this review are only indicative.

Total industrial output fell in the EU-27 by an average of 4.9 per cent year-on-year in January-March of this year, adjusted for working days. Production in metal processing decreased by an average of 8.4 per cent in the EU, but increased by 6 per cent in Finland compared to the same period one year ago. The manufacture of machinery and equipment in the EU decreased by more than 8 per cent on average from the previous year, but in Finland it expanded strongly by 7 per cent.

Exports of the electrical and electronics industry of Finland fell by as much as 35 per cent during the financial crisis in 2009, as the production of the mobile phone manufacturer Nokia collapsed at the same time. This year, the sector’s exports are expected to shrink by about 10 per cent due to the corona crisis. Production volume in the EU in January-March of this year was down by less than 3 per cent on average from that of the same period last year, but in Finland production increased by 9 per cent year-on-year.

Exports by the transport equipment industry will drop by 25 per cent this year, but next year it will rise by about 30 per cent. The shipbuilding industry will deliver one ship this year and three ships next year. According to data collected by ACEA (European Automobile Manufacturers Association), car plants in EU countries (including the UK) have been shut down for an average of 30 days this year due to COVID-19. The shutdowns lasted for 25 days in Finland, 29 in Germany, 34 in France, 40 in the United Kingdom and 41 in Italy. The car plant located in Uusikaupunki plans to manufacture cars at full capacity starting in July-August.

Production in the paper industry (including board and pulp) and the wood products industry fell by almost 15 per cent year-on-year in the first quarter due to strikes in the forest industry. The sharp decline was also reflected in export figures. Exports of wood products will fall by about 15 per cent this year as construction activity slows down. Exports of the paper industry are clearly declining.

Investments in the chemical industry will rise to about EUR 1.6 billion this year, most of which will be the replacement of production capacity. The value of new orders rose by more than 4 per cent year-on-year in January-March. Global energy demand (coal, oil, gas) will nevertheless shrink by 6 per cent this year and demand in the EU will fall by 11 per cent, which will also affect the Finnish oil refining industry.

The corona crisis is having an exceptionally strong impact on many service sectors. The amount of value added in the service sectors will clearly decrease this year. Of the industries covered here, the one most affected by the corona crisis is accomodation and food service activities, the value added of which is forecast to fall by almost 30% this year. In the transport and storage sector, value added will fall by about 20 per cent. In addition to the general decline in aggregate economic activity and purchasing power, both of these industries are subject to operating restrictions imposed by the government. In the wholesale and retail trade and business services, the decline in value added is smaller than this, but still almost 10 per cent. We estimate that next year all service industries will achieve moderate growth. It will take several years, however, to reach the 2019 production level once again.

INDUSTRIAL OUTLOOK 1/2020 (in Finnish)