Business outlooks are improving, now driven by services

According to the Confederation of Finnish Industries’ July Business Tendency Survey, Finnish company outlooks have continued to improve during the summer. The services sector, which has suffered the most from the coronavirus pandemic, is also rising back on its feet.

“Yes, the business cycle has improved during the summer in the hard-hit services sector. For the first time during the coronavirus crisis, the majority of service sector companies expect the situation to develop robustly. In industry, activity has also continued favourably, with the order backlog last being at such a level before the financial crisis. In the construction sector, on the other hand, the mood is more tentative,” says Sami Pakarinen, Director at the Confederation.

The differences between sectors and individual businesses remain significant. Although the outlook is positive for the autumn, growth will depend on the recovery of the services sector. In manufacturing and construction, the outlook is no longer as promising as it was in the spring. As the pandemic is not over yet, the outlook for the services sector and, consequently, for all businesses may weaken in the second half of the year.

“The more muted outlook for manufacturing and construction is partly the result of a global shortage of components and rise in raw-material prices, which are mentioned repeatedly in responses to the survey’s question about the main obstacles to production growth. The biggest problem for companies as a whole, however, is the insufficient availability of labour, an issue that has emerged quickly. In the services sector, a record high proportion (32%) of respondents reported problems with labour availability, and the near future will not offer improvement. In fact, it will become worse,” says Pakarinen.

Taxes on labour must be cut

“The lowering of taxes on labour and moderate wage rises will produce the best result from the point of view of purchasing power. A one per cent tax cut across all income categories would correspond to wage increases in the order of 4 to 5 per cent. Therefore, the Government must, in its budget session, decide on a moderate reduction in income taxation by at least 0.25 percentage points in all income categories. This would also be an encouraging signal for the labour market negotiations that will begin in the autumn,” says Jyri Häkämies, the Director General of the Confederation.

The negotiations beginning in the autumn constitute the third consecutive round of negotiations carried out sector by sector. The coronavirus has affected companies differently and many sectors are still experiencing a deep crisis. It is important that this is taken into account in any decisions reached in the negotiations. A common goal for all sectors and businesses is to enhance local, company-level agreements.

“The promotion of local agreements is justified both by the need to recover from the coronavirus pandemic and by improving our competitiveness and employment level,” Häkämies continues.

The most serious message in the Confederation’s Business Tendency Survey concerns the shortage of skilled labour. While a labour shortage already existed before the pandemic, it has now grown even worse. In fact, there is a risk that labour availability questions will stifle economic growth. The Government is expected to decide on remedial measures in its budget session.

“The Finnish Immigration Service needs additional funding in order to accelerate the processing of permits for foreign labour and to dismantle the shameful processing queues. In addition, unemployment benefits must be staggered so that it is always worth accepting a job. The budget session must also decide on targeted training, such as training care assistants for the health care and social sector,” Häkämies says.

EK Business Tendency Survey

The Business Tendency Survey is published four times a year by the Confederation of Finnish Industries (EK). The survey has been carried out regularly since 1966. It is part of the European Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, which is partially funded by the EU. The survey concerns activity in Finland. In July 2021, the Confederation of Finnish Industries asked businesses to evaluate their business outlook for the second quarter of 2021. 1,160 companies employing about 270,000 people in Finland responded to the survey.