EK Business Tendency Survey: Moderate growth expected in services and construction

03.08.2016

Weak business cycle will continue in manufacturing in second half of 2016

The outlook indicators for Finnish businesses for the next six months are polarized. Service and construction companies forecast moderate improvement whereas manufacturing companies expect the weak business cycle to continue for the rest of the year.

In July, the Confederation of Finnish Industries asked businesses to estimate their business outlook for the second half of 2016. The survey concerns activity in Finland.

According to the Business Tendency Survey, the outlook of manufacturing companies has not undergone any recovery in the first half of the year and the current situation is worse than average. Output is not expected to increase in the remaining part of the year and personnel numbers are expected to continue a slight decline. There is major variation in profitability forecasts between companies.

For service companies, the business cycle has improved somewhat but is still below its average. A slight improvement is forecasted for the second half of the year and sales are expected to increase at a moderately brisk rate. In construction, the cycle has improved as was expected in the previous survey. The current situation is already described as stronger than average and continued improvement is expected in the second half.

Outlook remains soft in manufacturing

In July, the general business outlook indicator for manufacturing sank to -5 (+4 in April). In July, 10% of manufacturing companies estimated that the market will improve in the second half of the year whereas 15% expect a weakening.

The outlook indicator for construction was +16 in July (+28 in April), and 21% forecasted improving growth in the upcoming months while 5% expected a decline.

The outlook indicator for service companies continued to improve slightly. The latest outlook indicator was +8 (+4 in April). In the July survey, 16% of service companies expected an improving cycle while 8% expect a weaker cycle for the rest of 2016.

Moderately brisk growth in services and construction in second half of 2016

In manufacturing, the number of new orders received was marginally down in early summer. The volume is expected to remain stable in the coming months. The order books have improved slightly but are still clearly below normal. In construction, the volume of new orders remained virtually unchanged in early summer but is expected to grow in the coming months. The order books have improve and are already close to their usual level.

Finished goods inventories in manufacturing and unsold homes in construction are close to average.

In manufacturing, output grew very slightly in early summer. In the third quarter, output is expected to decline slightly while there is cautious hope of growth for the final quarter.

In construction, output grew somewhat in early summer. Steady growth is forecasted to continue throughout the rest of the year. In the service sectors sales are now growing at a moderately brisk rate and a similar pace is expected to continue in early autumn. What is more, a further small sales acceleration is expected to take place towards the end of the year.

The capacity utilisation rate in manufacturing has improved somewhat, but remains rather low. In July, capacity was fully utilised in 70% of the companies that responded (56% in April).

Major variation in profitability forecasts between companies

The number of employees has remained almost unchanged in manufacturing in early summer but a small decrease is forecasted for the coming months. In construction, the number of employees has not changed in practical terms. A slight increase is predicted in the autumn as the situation is reassessed with seasonally adjusted figures. In the service sectors the number of employees has very slightly increased. It is not expected to change in early autumn.

In manufacturing, sales prices are expected to decrease at a slow rate. Prices are expected to increase in construction and to remain stable in services. Costs are expected to decline slightly in manufacturing. Costs are expected to increase slightly in construction and services. Manufacturing companies estimate that profitability will remain stable on average. There is major variation in expectations, however. Profitability is expected to improve slowly in construction and services.

Demand picks up slightly

While demand was said to have improved slightly, lacklustre demand as a whole remains the most significant obstacle to operations. Demand was considered to be weak by 27% of manufacturing companies, 25% of construction sector companies and 31% of service companies responding to the survey. Recruitment difficulties have become more common especially in construction, where they have become the most serious obstacle to operations (34% of companies). In the service sectors (18%) and especially in manufacturing (7%), the issues were less serious. Financing difficulties were described as minor in both manufacturing and services whereas in construction they were cited by 12% of the respondents.