EK Business Tendency Survey: Economy expected to be flat in first half of 2015

04.02.2015

The business outlook for Finnish companies for the first half of 2015 is still very modest. The expectations of manufacturers have improved somewhat since the previous survey, but they expect the performance of the economy to be no more than ‘passable’. Expectations in the service sectors and in construction remain low.

Slight recovery in manufacturing outlook – small increase expected in orders

According to the Business Tendency Survey conducted by the Confederation of Finnish Industries (EK) in January, manufacturing companies anticipate a slightly higher level of new orders, which would provide a modest boost to manufacturing output over the coming six months. Manufacturing companies’ order books are nevertheless still below average. In services, sales are forecast to decline a little, but there is considerable variation among the different service sectors.

Current economic conditions are below average levels in all the main sectors. The labour force will continue to shrink across the board.

Business outlook balance indicators still negative particularly for services and construction

In January, the general business outlook balance indicator for manufacturing in the coming months rose to -4 (-13 in October). In all, 11% of manufacturing companies expected the economy to improve during the first half of 2015, whereas 15% anticipated a worsening of the situation.

The business outlook balance indicator for construction was -21 in January (-26 in October). An im-proved outlook for the first half of 2015 is expected by 12% of respondents, while 33% feel the reverse will be true.

The business outlook balance indicator for service companies was -12 in January (-18 in October). In the latest survey, 12% of service companies predict an improvement in the next six months, and 27% predict a decline.

New orders will give gentle boost to manufacturing output – situation weaker in services and construction

In manufacturing, there were as many new orders in the last quarter of the year as there were in the previous quarter. The number of orders is estimated to rise slightly in the coming months. In construction, no major changes are expected in the number of orders. Manufacturers’ order books remained almost unchanged, and were significantly below normal. In construction, order books again declined and were at a low level.

Finished goods inventories in manufacturing have remained close to average. Construction compa-nies had a fairly large number of unsold homes, but there was no longer a quarterly rise in this figure from the previous survey.

The level of output in manufacturing was almost unchanged in the final quarter, but it was expected to grow a little throughout the first six months of 2015. In construction, output remained fairly stable and no major changes are anticipated in the coming months. Sales in services are expected to be rather weak, as the declining sales trend that began last year is forecast to continue. Variation among the different service sectors is quite considerable, however.

Manufacturing companies’ capacity utilisation rose slightly but was nevertheless below average. In January, 65% of respondents indicated that their production capacity was fully utilised (58% in October).

Labour force will shrink in coming months

The number of employees fell in all three main sectors in the final months of the year, particularly in construction and services. Labour force expectations are again modest, and the number of employees is expected to continue falling in the coming months as well.

Sales prices are expected to continue their decline in all the main sectors in the coming months, but particularly in construction. Costs are anticipated to rise slightly in construction and services, and to be stable in manufacturing.

Profitability declining in construction and services

Profitability improved a little in manufacturing in the final quarter of last year, but no change is ex-pected in the coming months. In construction and services, profitability is expected to fall slightly in the next few months.

Insufficient demand is still clearly the most significant obstacle to business growth. Demand was felt to be slack by 47% of manufacturing companies, 60% of construction companies and 47% of service sector companies. Reported recruitment difficulties were fairly few, with the exception of construction and certain service sectors. Financing difficulties, on the other hand, were most common in the construction sector, where such problems were reported by 7% of respondents.