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Gross domestic product grew by 2.1 per cent

1.3.2006

According to Statistics Finland's preliminary data, the volume of Finland's GDP grew by 2.1 per cent in 2005, when it amounted to EUR 155 billion. The preliminary data are based on the information available on 20 February 2006 on economic development in 2005.

During the last quarter of 2005, GDP increased by 0.9 per cent from the previous quarter. Growth compared with the corresponding quarter of the previous year amounted to 2.3 per cent. There was one more working day in 2005 than in the year before.

Growth in primary production and service industries

The volume of primary production went up by just short of two per cent from the previous year. Livestock production contracted slightly whereas that of crop cultivation increased. Forestry declined by three per cent due to the industrial action in the forest industry in May and to increased use of wood from abroad.

In the processing industries, output declined by less than one per cent from the previous year. In the metal industry, output increased by good two per cent, but the growth petered out towards the end of the year. Manufacture of transport equipment showed strong growth, but output in the electrical and electronics industry contracted at the end of the year. Due to the industrial action in early summer, output in the wood and paper industry was almost 10 per cent down on the year before, which lowered domestic product by just under one per cent last year. The output of products in other manufacturing decreased by one per cent from the previous year.

Building construction increased by 5.5 per cent. Construction of both residential and other buildings increased last year. Output in civil engineering grew by 4.5 per cent.

In the service industries, output increased by three per cent last year. Growth in trade amounted to five per cent. Wholesale trade and retail trade both grew by five per cent. Growth in the sales of motor vehicles continued and over the whole year amounted to just short of six per cent. Output increased by good two per cent in hotel and restaurant activities. In transport and communications output also went up by over two per cent with the highest growth figures recorded in air transport, and in post and telecommunications. Financial intermediation and insurance activities increased by nearly eight per cent.

During the first quarter of the year output was up by 0.4 per cent on the previous quarter. In the second quarter of the year GDP fell by 1.3 per cent due to the industrial action in the wood and paper industry but then grew again by 2.9 per cent in the third quarter. In the last quarter GDP increased by 0.9 per cent when compared with the previous quarter.

Households' consumption and private investments again supported growth

As in 2004, growth in demand hinged on households' consumption and private investments last year. Investments, which had turned towards growth in 2004, continued to increase. The volume of exports grew by seven per cent and that of imports by good 10 per cent.

Private final consumption expenditure rose by nearly 3.5 per cent last year. Purchases of new cars continued to increase moderately, but much more domestic appliances, entertainment electronics, furniture and other furnishings were bought than in the year before. Purchases of durable consumer goods went up by 8.5 per cent last year, whereas in the year before they increased by seven per cent. Consumption of semi-durable goods increased by 5.5 per cent and that of services by just under three per cent. The growth in the consumption of non-durable goods was only 1.5 per cent, as use of heating energy decreased because the weather was milder than usual.

Government consumption expenditure increased by 1.5 per cent, primarily in local government. Central government's consumption expenditure contracted slightly. Government investments contracted by six per cent.

In the total economy, investments increased by just under two per cent. Total investments in machinery, equipment and transport equipment decreased by 5.5 per cent. Compared with the previous year, investments in residential buildings increased by four per cent, while construction of other buildings went up by six per cent.

Employment increased slightly

According to Statistics Finland's labour force statistics, the rate of unemployment was 8.4 per cent, having been 8.8 per cent in the year before. The average number of unemployed persons last year was 220,000. The rate of employment was 67.9 per cent, against 67.2 per cent in the year before. Last year the number of employed persons went up by 1.6 per cent and the number of hours worked by 0.5 per cent.

Moderate rises in prices

The economy's overall price level is estimated to have risen by 1.6 per cent last year as measured by the GDP price index. The GDP price index was put up in particular by increases in the prices of the service industries and energy.

The year-on-year rise in the consumer price index was 0.9 per cent, but the price index of households' final consumption expenditure was 1.2 per cent higher than in the year before. In national accounts, the price of housing services is measured by changes in market rents, while the price of owner-occupied housing is also taken into account in the consumer price index.

The terms of trade weakened by 2.8 per cent, because export prices fell by under one per cent, but import prices went up by good two per cent.

National income did not grow in real terms

Net national income grew by four per cent in nominal terms last year and was EUR 24,800 per capita. Finland's gross national income last year was EUR 155 billion, i.e. almost as much as gross domestic product. Gross national income grew by only one per cent in real terms as the terms of trade weakened.

Finnish households' wages and salaries grew by 4.5 per cent and employers' social contributions by five per cent. The overall proportion of compensations of employees of the national income went up to 59.2 per cent, having been 58.9 per cent in the year before. Property and entrepreneurial income accounted for 25,6 per cent of the national income. In the year before their respective proportion was 25.8 per cent.

Profits of non-financial corporations declined slightly

The operating surplus of non-financial corporations went up by one per cent from the year before. The entrepreneurial income of non-financial corporations diminished by four per cent from its record level of the year before. Entrepreneurial income roughly corresponds with profit before taxes and dividends.

Non-financial corporations paid about the same amount of direct taxes as in the previous year. By contrast, non-financial corporations paid eight per cent less in dividends than in the year before, most likely due to revised treatment of dividends in taxation.

The value of non-financial corporations' fixed investments in Finland went up by five per cent last year. Their net lending, i.e. their financial position, showed a surplus of good EUR 5 billion, which was good EUR 1 billion lower than in the year before.

The net interest income of financial corporations (financial intermediation services indirectly measured) was slightly lower than in the previous year. Stocks of credits and deposits grew clearly, but the interest margin narrowed. The financial position of financial corporations showed a surplus after two years of deficit.

General government surplus EUR four billion

The financial position of central government showed a slight surplus of EUR 1 billion last year. It showed a surplus for the sixth successive year. State's tax revenues grew by 3.5 per cent. As a consequence of increased consumption, revenues grew especially, by six per cent, from value-added tax. Income transfers paid to local government, including returns of value-added tax, grew by seven per cent, while those to social security funds went down by 1.5 per cent.

The financial position of local government showed a surplus of good EUR 1 billion, or slightly above that of central government. Local government's tax revenue increased by four per cent and its income transfers from central government by seven per cent. Consumption expenditure grew by around 5 per cent in nominal terms and by around two and half per cent in real terms. Investments are estimated to have declined slightly.

The financial surplus of employment pension schemes was EUR 4 billion while the financial position of other social security funds was almost in balance after two years of deficit.

The overall financial position, or net lending, of general government showed a surplus of just short of EUR 4 billion, which is 2.4 per cent of GDP. The EMU surplus differs slightly from the net lending of general government used in national accounts, and was 2.6 per cent in 2005. The EMU debt amounted to 41.1 per cent of GDP, having been 45.1 per cent in the year before.

The proportion of public expenditure of GDP (excluding internal transfers) was 50.7 per cent. The tax ratio, or the proportion of taxes and compulsory social security contributions of GDP, went up slightly last year to 44.5 per cent, having been 44.3 per cent in the previous year.

Households' real income barely grew

In 2005, the disposable income of households increased by 1.6 per cent in nominal terms and by only 0.4 per cent in real terms. The wage and salary sum grew by 4.5 per cent as a consequence of risen level of earnings and improved employment. Entrepreneurial income remained on level with the year before. Entrepreneurial income from forestry decreased but imputed income from owner-occupied dwellings grew.

There were several reasons for the moderate growth in households' total income. Paid direct taxes grew by five per cent, partly because dividends also became subject to tax. At the same time the dividend income of households fell by 15 per cent. Compulsory social insurance contributions also rose slightly but the growth in social benefits received was modest. Households also paid more interest, especially on housing loans.

Final consumption expenditure of households grew by five per cent. The savings rate, that is, the proportion of savings relative to disposable income became negative and was -0.4 per cent, having been +2.8 per cent in the year before. Households' fixed investments grew by 11 per cent as housing construction had began to grow. The financial position of households showed a deficit of EUR 4 billion.

Households' indebtedness rate increased further and was 86.5 per cent at the end of September. The indebtedness rate expresses the ratio between the credit stock relative to annual disposable income.

Methodological note and preliminary annual data

Estimations of the volume of value-added of the metal industry deviate upwards from the volume index of industrial output, because the volume index of industrial output primarily measures development in the volume of output without taking into consideration qualitative changes or all items entered under production.

Exports and imports of goods have been mainly deflated with Statistics Finland's export and import price indices a the 2-digit level of the Standard Industrial Classification and not with overall indices, because this allows more real-time consideration of structural changes in exports and imports.

Revision of the 1975-2004 time series on 31 March 2006

On 31 March 2006, Statistics Finland will publish revised annual national accounts time series for the 1975 to 2004 period. The respective revised time series for quarterly accounts will be published in April 2006. Once this has been done, the data published here for 2005 will no longer be fully comparable with those on earlier years.

The data for 2005 (national balance of supply and demand items) will be next revised on 9 June 2006 at the same time as preliminary data are published for the first quarter of 2006. Sector accounts for 2005 will be next revised on 13 July 2006. After these revisions, the data on 2005 will again be fully comparable with those on earlier years. The data concerning 2004 in this publication comply with the data published in July 2005.

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Last updated 1.3.2006