Businesses expect business cycle to weaken further

According to the Confederation of Finnish Industries’ October Business Tendency Survey, Finnish businesses anticipate a weaker trend than they did in the summer. In fact, expectations are now as weak as they were during the COVID-19 crisis in spring 2020. Businesses’ business cycle outlooks have also continued to decline. The service sectors have been supporting the economy in recent months, whereas a downturn in construction and manufacturing has been evident for some time.

“Based on the latest results, the economic trajectory is similar to what it has been in the past. The economy is heading for recession, with construction and manufacturing leading the way. Services are still holding their own, but expectations there are also weakening. The winter will be difficult for many companies and the number of bankruptcies and change negotiations is likely to remain high also in the coming months,” says Sami Pakarinen, Director at the Confederation of Finnish Industries.

Construction and manufacturing companies have scaled back production and expectations regarding the coming months are pessimistic. Sales performance has continued to hold up in the service sectors alone. The increase in inventories of unsold new homes and the clearly lower than normal order book level in manufacturing point to major problems.

“Evaluating economic development is now significantly hampered by uncertainties related to statistics. For example, the data on housing starts do not seem to reflect the actual situation, in which construction investment is set to shrink even more than expected. It is likely that the Finnish economy is now doing worse than some statistics suggest. A more accurate picture will emerge and we must be prepared for this,” says Pakarinen.

Insufficient demand is the biggest obstacle to growth for Finnish companies. As many as 56 per cent of the responding companies reported that insufficient demand was an obstacle to growth. Problems related to the availability of the labour force have eased, but 18 per cent of respondents still see availability as a barrier to growth. The increase in financing problems in construction is also striking.

“Business sentiment points to a clear slowdown in growth. Even at zero growth, the public debt ratio looks set to rise above 80 per cent in 2027. If we remain on a slow growth path, the debt ratio will reach 100 per cent already by the end of this decade. It will require a huge effort to stabilise the debt ratio and send it on a downward path, but this is something we must do,” says Sami Pakarinen, Director of the Confederation of Finnish Industries.

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 October 2023, the Confederation of Finnish Industries asked businesses to evaluate their business outlook for the third quarter of 2023. A total of 1,188 companies employing about 265,000 people in Finland responded to the survey.