Economy still expected to be weak to year end

Spring’s emerging hopes of upturn have not gained strength

The business outlook for Finnish companies for the second half of the year is still very modest. Spring’s emerging, though faint, expectations of an upturn have not gained strength during the summer. 

The Business Tendency Survey conducted by the Confederation of Finnish Industries (EK) in July indicated that manufacturing output is expected to grow, but that the rate of growth is likely to be very slow. In services, the trend in sales was weak and is barely expected to rise at all in the coming months. The labour force is expected to decline slightly in all the main sectors.

Current economic conditions are below their average levels in all the main sectors. Order books are significantly below normal in most sectors. The capacity utilisation rate has risen from last year’s level, but it is still below the long-term average.

Business outlook still cautious

In July, the general business outlook balance indicator for manufacturing in the coming months was -2 (+1 in April). In July, 13% of manufacturing companies predicted an improvement in the outlook in the second half of the year, and 15% predicted a worsening.

The business outlook balance indicator for construction in July was -12 (-3 in April). Seventeen per cent of respondents reported that they expect a positive turnaround, while 29% expect a continued decline.

The business outlook balance indicator for services fell to -10 (-6 in April). In the July survey, 11% of respondents expected an improvement in the situation, while 21% anticipated a deterioration during the rest of the year.

In manufacturing, the trend in orders in the early part of the summer was a disappointment. The number of new orders fell, although in the previous Business Tendency Survey an increase had been expected. There was also a shrinkage in orders in the construction sector. Manufacturing companies’ order books were slightly down again, and orders were described as being below average. Order books in construction are also below the normal level.

Finished goods inventories in manufacturing have remained slightly higher than average. Construction companies saw an increase in the number of unsold homes to a level a little higher than normal.

Manufacturing output expected to grow very slowly – sales growth in services fairly weak

In manufacturing, output remained almost unchanged in April-June. The actual trend approximated to the expectations presented in the previous survey. Output is expected to grow in the second half of the year, but at a very slow rate. The output volume for construction companies has barely changed, and is expected to remain fairly stable in the coming months as well. Service sector sales in early summer performed less well than expected, and sales volumes fell. No growth is expected in the next few months, but there are cautious growth expectations for the end of the year.

The capacity utilisation rate in manufacturing was at the same level as in the spring. The amount of unused capacity is higher than average. In July, production capacity was fully utilised in 64% of the companies that responded (also 64% in April).

Labour force to shrink slightly in all main sectors

Construction and services companies responding to the survey reported a fall in the number of employees in the April-June period. The labour force trend in manufacturing companies was slightly better than expected, with the number of employees remaining almost at the level of the first part of the year.

Employment growth expectations are still quite modest. The labour force is expected to shrink a little in all three main sectors in the early autumn.

Manufacturing and construction companies expect sales prices to decline a little in the coming months. In services, price changes are expected to be small. Costs are expected to be almost unchanged in manufacturing and in construction. The rising cost trend in services is expected to ease up, with only a slight rise in costs in the coming months.

Profitability expected to improve slightly in manufacturing

Profitability improved a little in manufacturing during April-June. Expectations for early autumn are cautiously optimistic as well. In construction, profitability declined a little and is expected to remain unchanged in the coming months. The gentle decline seen in service companies’ profitability is expected to continue in the early autumn.

Insufficient demand is still the greatest obstacle to business activity. Demand was felt to be insufficient by 43% of manufacturing companies responding to the survey. In construction the figure was 46%, and in the service sectors 40%. Reported recruitment difficulties were fairly minor as a whole. In service companies they are more common, however: 11% of service companies felt that it is difficult to recruit skilled employees. Financing problems were most common in the construction sector, where such problems were reported by 9% 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 July 2014, 1,130 companies employing approximately 250,000 people in Finland replied to the survey.