EK Business Tendency Survey: General business outlook will remain rather weak

04.05.2016

Only minor recovery expected – stronger outlook for construction

The business outlook for Finnish companies over the next six months is still cautiously expectant. In manufacturing and services the weak economic conditions are anticipated to improve only very slight-ly. In construction there are clearly more widespread expectations of an improvement in the outlook.

In April, the Confederation of Finnish Industries asked companies for their opinions on their business outlooks for the summer and autumn of 2016.

According to the Business Tendency Survey the current situation for manufacturing companies is weaker than average. Over the next six months only meagre growth in output is forecast. In spite of a small improvement, order books are lower than normal. The number of employees is expected to fur-ther decline slightly, but profitability is expected to improve slightly.

In services, economic conditions are also below normal in general. Sales growth will continue to be slow. No significant changes are expected in the number of employees and profitability will remain at the current level.

The outlook for construction has improved to some extent during the first part of the year and the current situation is said to be average. Likewise, expectations for the short term are brighter than those of the other sectors: outlooks are expected to strengthen somewhat during the summer and autumn.

Outlooks still cautious for manufacturing and services

In April, the general business outlook balance indicator for manufacturing remained almost un-changed at +4 (+3 in January). In the April survey, 13% of manufacturing companies expected an im-provement in the outlook during the next six months, while 9% expected the outlook to weaken.

The business outlook balance indicator for construction improved to +28 in April (+4 in January). This time, 31% of respondent companies expected an improvement in the outlook while 3% expected a weakening of the situation.

The business outlook for services strengthened slightly and the latest balance indicator is +4 (-3 in January). In the April survey, 17% of service companies anticipated an improving trend, whereas 13% expected a weakening trend over the next six months.

Slow growth anticipated for the coming months

The number of new orders received by the manufacturing sector increased slightly during the first months of the year. A slight growth in new orders is also expected for the coming months. In construction, the volume of new orders remained virtually unchanged but is expected to grow in the coming months. In spite of a slight improvement, manufacturing order books are at a lower level than normal. In contrast, the volume of new orders in construction has risen to the normal level.
Finished goods inventories in manufacturing are close to average. The number of construction com-panies’ unsold homes has declined to the normal level.

In manufacturing, output remained almost unchanged in the first quarter. In April–June output is estimated to grow slightly and the speed of growth is expected to remain slow also in the late summer and early autumn.

In construction, output grew slightly in the first months of the year. Growth is forecast to be moderately brisk also in the coming months.

In the service sectors, sales volumes grew slowly during the first part of the year. Similarly, in the coming months only slight growth is expected while slightly stronger growth is expected for late summer and early autumn.

The capacity utilisation rate in manufacturing weakened again and there is currently a large amount of under-utilised capacity. In April, only 56% of respondents indicated that their production capacity was fully utilised (68% in January).

Manufacturing labour force will continue to decline slightly

The size of the labour force in manufacturing has continued to decline and this is expected to continue in the coming months. In construction, the labour force has grown during the first months of the year. A slight increase is predicted in the coming months as the situation is reassessed with seasonally adjusted figures. The labour force in services declined slightly at the beginning of the year, but is not expected to change in the coming months.

In manufacturing, sales prices are expected to remain almost unchanged. In services, the sales pric-es are expected to further decline slightly, whereas in construction they are expected to rise slightly. Costs are expected to decline slightly in manufacturing. Costs are expected to increase slightly in construction and services.

Manufacturing companies expect profitability to improve slightly, but the variation in profitability ex-pectations among companies is considerable. Profitability is expected to remain unchanged in con-struction and services.

Demand is lacklustre in general

Demand was still considered to be weak and the lacklustre demand is clearly the most significant ob-stacle for operations. Demand was considered to be lacklustre by 27% of manufacturing companies, 46% of construction sector companies and 40% of service companies responding to the survey. Re-cruitment problems were most common in construction (29% of respondents) and in services (12%), while in manufacturing they were less pronounced (5%). Financing problems were very slight and were felt to be a problem in only 3–5% of companies in the main sectors.