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Gross domestic product grew by 5 per cent last year

According to Statistics Finland's revised preliminary data, the volume of Finland's GDP grew by 5.0 per cent last year. The growth was the fastest since 2000. Approximately one percentage point of the growth in GDP last year was due to the industrial dispute in the paper industry in the year before last. Last year's GDP was EUR 167 billion.

The data published now are still preliminary and based on the information on last year's economic development available on 6 July 2007.

According to the first preliminary data published in March, growth in DGP was 5.5 per cent last year, which is one half of a percentage point higher than indicated by these revised data. An error was detected in the preliminary data in early July which related to the treatment of agricultural subsidies in the accounts. Had the calculations been correct, the preliminary data would have shown a 5.2 per cent growth in the volume of GDP instead of 5.5 per cent.

Last year Finland implemented the reform concerning EU support for the farm sector which was adopted in 2003. In this context the subsidies previously linked to production and classified as subsidies on products were separated from production and replaced with a single farm payment. Consequently their classification in national accounts changed from subsidies on products to other subsidies on production. The classification change had a significant impact on the output and value added of agriculture, as these are valued at basic prices which include subsidies on prod-ucts but not other subsidies on production.

As GDP is valued at market prices, subsidies on products must be deducted from the value added to eliminate their effect. This operation had been performed correctly in the current price calculations, but in the constant price calculations less subsidies on products were deducted from the value added than were included in it. The decrease in subsidies on products had in this context been interpreted incorrectly as a decrease in their volume, when the actual situation involved a decrease in the prices of subsidies on products. In the accounts the development of the volume of subsidies on products follows the development of the volumes of the products to which they are linked.

Largest growth in manufacturing

Last year the volume of primary production contracted by 0.7 per cent from the year before. Value added in agriculture contracted by 2 per cent due to worse crops than those in the previous year. Value added in forestry remained on level with the previous year. Fellings decreased somewhat, but the net growth of forests increased.

In the secondary production value added went up by 9.3 per cent last year. Growth was especially rapid in industry, where the volume of value added grew by 10.6 per cent. In the metal industry value added grew by more than 15 per cent. Of this, the electronics industry accounted for 21 per cent, the metal processing and basic metal industries for 15 per cent, the manufacture of machinery and equipment for 8 per cent and the manufacture of transport equipment for four per cent. In the paper industry value added went up by as much as 23 per cent due to the industrial dispute of the previous year. Construction also continued lively and the volume of value added in construction grew by a good 3 per cent.

In private services value added grew by 4.7 per cent last year and in public services by 0.3 per cent.

Trade continued to liven up and the value added generated by trade grew by 6.5 per cent. The biggest increase was recorded in wholesale trade. Hotel and restaurant activities increased by close on 3 per cent. In transport and communications value added grew by approximately five and a half per cent. The fastest growth, at 12 per cent, was again recorded in telecommunications but the growth rate of e.g. railway transport was the fastest in many years at 5 per cent.

Value added in financial intermediation and insurance activities grew by nearly six per cent. Real estate activities grew steadily by nearly 3 per cent and business activities by nearly 5 per cent, with clearly the biggest increase recorded in provision of personnel. Public administration dimin-ished by one per cent. Educational services remained on level with the previous year whereas health and social services increased by nearly two per cent. Other community, social and personal services grew by two per cent.

Exports supported growth

All demand items in the national economy went up last year. The fastest growth, a good ten per cent from the previous year, was recorded again in exports. Consumption grew by a good three per cent and investments by roughly four per cent.

Private final consumption expenditure went up rapidly last year, by 4.4 per cent. The fastest growth was recorded in purchases of information technology and electronics. Altogether, the volume of the purchases of durable consumer goods grew by over 9 per cent. The purchases of semi-durable goods such as clothing and footwear also grew notably, by approximately 8 per cent.

The volume of government consumption expenditure increased by one per cent, but government investments decreased by over 5 per cent. By contrast, private investments increased by approximately 5.5 per cent. The rate of investments in the economy rose slightly to 19.1 per cent. Build-ing construction investments increased by just under five per cent and investments in machinery and equipment by around three per cent. Invento-ries grew by more than usual last year.

The volume of exports grew by 10.4 per cent and that of imports by 8.3 per cent. As the prices of imported goods went up by more than those of exported goods, the surplus in the balance in goods and services did not improve, but stood nevertheless at EUR 8.7 billion

Improvement in employment

According to national accounts, the number of employed persons increased by slightly less than 2 per cent last year. Jobs increased most in busi-ness activities, trade and construction.

According to Statistics Finland's labour force statistics, the rate of unemployment was 7.7 per cent, having been 8.4 per cent in the year before. The average number of unemployed persons was 204,500 last year. The rate of employment was 68.9 per cent, as against 68 per cent in the year before.

The productivity of labour of market producers (primarily private sector) increased last year by 4.5 per cent according to value added and 5.3 per cent according to output. The productivity of labour grew by 3.2 per cent in the total economy.

Price level remained stable

The economy's overall price level is estimated to have risen by 1.2 per cent last year as measured by the GDP price index. The rise of the GDP price index was slowed down especially by decreases in the prices of the electronics industry and telecommunications.

The year-on-year rise in the consumer price index was 1.6 per cent, but the price index of household consumption expenditure in national ac-counts was 1.3 per cent. The disparity is explained by a difference in the measurement of the price development of insurance, financial intermedia-tion and housing services in national accounts and in the consumer price index.

The terms of trade weakened by as much as 3.7 per cent, as import prices went up by 6.5 per cent but export prices only by 2.5 per cent.

National income grew by 3.8 per cent in real terms

Net national income grew by 6.6 per cent in nominal terms last year, and was EUR 27,100 per capita. Finland's gross national income was slightly higher than gross domestic product last year, i.e. EUR 168 billion. Due to the weakened terms of trade, gross national income and net national income both grew by less than gross domestic product in real terms, i.e. by 3.5 and 3.8 per cent respectively.

Households' wages and salaries went up by five per cent and employers' social insurance contributions by just under three per cent. Compen-sations of employees increased by a total of 4.5 per cent and their share of the national income contracted to 56.7 per cent. The respective share in the previous year was 57.9 per cent. Property and entrepreneurial income increased by 12.5 per cent and their share of the national income was 28.9 per cent. The respective share in the previous year was 27.4 per cent.

Non-financial corporations' profits grew clearly

Non-financial corporations' operating surplus, or operating profit, grew by more than 14 per cent from the previous year. Their entrepreneurial income grew by 21 per cent. Entrepreneurial income also takes into consideration property income and paid interest and corresponds roughly with profit before payment of taxes and dividends. In nominal terms, non-financial corporations' profits were higher than ever before.

Non-financial corporations paid seven per cent more direct taxes and ten per cent more dividends than in the year before.

Non-financial corporations' fixed investments in Finland grew by 9 per cent last year especially due to the growth in building construction in-vestments. In nominal terms, non-financial corporations' fixed investments were higher than ever before. Non-financial corporations' net lending, or financial position, showed a surplus of a good EUR 8 billion, as against a good EUR 6 billion in the previous year.

Financial corporations' commission income and financial intermediation services indirectly measured (net interest income) grew clearly from the previous year. The credit and deposit stock increased and the interest margin showed an upturn. The financial position of insurance and financial corporations showed a surplus of a roughly EUR one billion.

General government surplus over EUR 6 billion

Last year the financial position of central government continued to show a surplus, which stood at EUR 1.4 billion. State revenues from indirect taxes grew by a good 4 per cent and those from direct taxes by a good one per cent. Income transfers to local government (incl. repayments of value added tax) went up by 10 per cent but those to social security funds fell by close on one per cent.

Central government's final consumption expenditure grew by slightly less than four per cent in nominal terns and by a good one per cent in real terms. Investments declined by six per cent.

The financial position of local government showed again a deficit, but at EUR 0.3 billion the deficit was smaller than before. Tax revenues re-ceived by municipalities went up by nearly 7 per cent. Final consumption expenditure went up by about 4.5 per cent in nominal terns and by a good one per cent in real terms. Investments went up by five per cent.

The financial surplus of employment pension funds was EUR 4.9 billion. The financial position of other social security funds was EUR 0.3 billion in surplus after showing a deficit for several years.

The total financial position, or net lending, of general government showed a surplus of EUR 6.2 billion. The EMU deficit/surplus deviates slightly from the concept of net lending of general government used in national accounts, and stood at EUR 6.4 billion, or 3.8 per cent of the GDP, which is the highest since 2002.

The proportion of public expenditure of GDP (excluding internal transfers) contracted to 48.8 per cent. The respective proportion in the previous year was 50.5 per cent.

The tax rate, or the proportion of taxes and statutory social security contributions of GDP, contracted last year to 43.5 per cent. The tax rate was 44.0 per cent in the year before.

Households' real income grew by 2 per cent

Households' disposable income increased last year by 3.2 per cent in nominal terms and by 1.9 per cent in real terms.

The biggest contribution to the growth in gross income came from the 5 per cent growth in the wage sum, which was due to the risen level of earnings and improved employment. Social security benefits received by households went up by 2.5 per cent. By contrast, entrepreneurial income decreased by two per cent. Entrepreneurial income from agriculture and forestry diminished, as did imputed income from owner-occupied dwell-ings, whereas other items of entrepreneurial income increased. Direct taxes paid increased by a good three per cent.

Households' final consumption expenditure grew by 5.7 per cent in nominal terms, which is clearly more than their disposable income. The savings rate, i.e. the ratio of savings to disposable income, was -2.5 per cent. This was the most negative ratio ever. Households' fixed investments went up by 9 per cent in nominal terms. The financial position of households showed a deficit of EUR 6 billion.

Households' indebtedness increased by over 8 percentage points and stood at 97.7 per cent, which was higher than ever before. The indebted-ness rate expresses the ratio between the end-of-year credit stock and annual disposable income.

Next revision in January 2008

National accounts data for 2005 and 2006 will next be revised at the end of January 2008. The data for 2005 will then become final.

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Last updated 12.7.2007