Business outlook for winter quite modest – expectations of quick turnaround faded

The business outlook expressed by Finnish companies with regard to the approaching winter is cautious. The general outlook is felt to have weakened somewhat, and expectations of a quick turnaround for the better have faded.

The Business Tendency Survey conducted by the Confederation of Finnish Industries (EK) in October nevertheless indicated that manufacturing output is expected to grow a little during the coming months. In services, the trend in sales was fairly weak and is not expected to rise during the remainder of the year. A further slight decline in the labour force is anticipated in all the main sectors.

Current economic conditions are below their average levels in all the main sectors. In most sectors, order books are far from full and there is a lot of free capacity.

Business outlook rather negative

In October, the general business outlook balance indicator for manufacturing in the coming months fell to -13 (-2 in July). In all, 10% of manufacturing companies expected the economy to improve during the coming winter, whereas 23% forecast a worsening of the situation.

The business outlook balance indicator for construction in October was -26 (-12 in July). A turn for the better was expected by 9% of the respondents, while 35% believed that conditions would deteriorate.

The business outlook balance indicator for services fell to -18 (-10 in July). In the latest survey, 10% of companies predicted an improvement in the next six months, and 28% predicted the reverse.

In manufacturing, there were almost as many new orders in the early autumn as there were in the previous quarter. The trend in orders was slightly weaker than had been expected three months previously. In the construction sector, the number of orders fell a little. For manufacturing and construction companies, order books are down quite considerably on their normal levels.

Finished goods inventories in manufacturing have remained close to average. Construction companies saw an increase in the number of unsold homes to quite a high level.

Manufacturing output expected to grow slowly, but service sales will stand still

In manufacturing, output grew very slightly in the third quarter, but this was nevertheless a little below the expected growth. Output is expected to continue growing slowly in the final part of the year and in the first quarter of 2015. Output in the construction sector fell slightly and is also expected to fall gently in the final quarter of the year. Sales in services remained stable in the early autumn. Sales are barely expected to change in the final quarter of the year or the first three months of 2015.

The capacity utilisation rate in manufacturing was particularly low. There is clearly more unused capacity than normal, with only 58% of respondents reporting full capacity utilisation in October (64% in July).

Labour force shrinking in all main sectors

The number of employees fell in all three main sectors in July-September. The reduction was greatest among construction companies. Labour force expectations are again fairly weak, and the number of employees is expected to continue falling in the coming months as well.

Sales prices are expected to fall in all the main sectors in the coming months, but particularly in construction. Costs are anticipated to rise in the service sectors, but to fall a little in construction. The cost trend in manufacturing is projected to be stable.

Profitability to improve in manufacturing, but to weaken in other sectors

Manufacturing companies continued to show a small improvement in their profitability in the third quarter of the year. In construction and services, profitability declined a little. The profitability trend is forecast to continue unchanged in the coming months: in manufacturing it is expected to grow a little, while in construction and services it will decline slightly.

Insufficient demand is still clearly the most significant obstacle to the growth of business operations. Demand was felt to be slack by 41% of manufacturing companies, 61% of construction companies and 42% of service sector companies. Recruitment difficulties are most common in the service sectors. Among service companies, 12% felt that recruiting skilled staff was a problem. Financing difficulties, on the other hand, were most common in the manufacturing and construction sectors, where such problems were reported by 7% of respondents.

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. In October 2014, 1,314 companies employing about 285,000 people in Finland replied to the survey.