EK Business Tendency Survey: Still waiting for a sustained upturn

07.05.2014

Outlook nevertheless improved slightly in early months – output expected to grow a little

Business growth in Finnish companies in the early months of the year was fairly modest. Expectations for the coming summer are a little more optimistic than before, but a marked turn for the better is not yet in view. The prevailing economic conditions were described in the survey as being below average in all the main sectors. Order books are below average and there is a lot of unused capacity, even though the capacity utilisation rate has picked up slightly.

In manufacturing, output is expected to remain at its current level or to grow by only a small margin in the coming months. In services, the weak trend in sales is expected to turn into one of cautious growth. However, the labour force is expected to continue on a slight downward track in all the main sectors.

The wide variation in the reported economic situation and expectations of different companies and sectors illustrates the fragmented nature of the current economic picture.

Business outlook balance indicators improved

In April, the business outlook balance indicator for the coming months in manufacturing rose to +1, up from -7 in January. In April, 15% of manufacturing companies forecast an upturn in late spring and summer, and 14% forecast a deterioration in the same period.

In April, the business outlook balance indicator for construction was -3, up from -16 in January. 23% of construction companies expected an improvement in the situation, and 26% expected the reverse.

In April, the business outlook balance indicator for services fell to -6, down from -2 in January. In the latest survey 11% of companies expected the economy to be improving in late spring and in the summer, while a deterioration was expected by 17% of respondents.

In manufacturing, the volume of new orders remained fairly stable in January–March. Orders were again down in the construction sector, falling by a small amount. Manufacturing companies indicated that their order books had picked up a little, but orders continue to be below average. In construction, order books remained unchanged at a fairly low level. Finished goods inventories in the manufacturing sector are slightly higher than average, as was the case in the previous survey. By contrast, construction companies saw a slight fall in the number of unsold homes.

Growth in output expected to be very slow in coming months

In manufacturing, output was up a little in January–March. The level of output was even a little better than had been anticipated three months ago. Second-quarter output is expected to grow by just a small amount. There are almost no expectations of growth in late summer either. Construction companies’ output was down marginally, but the decline is expected to stop in the coming months. There was no growth in service sector sales in the first quarter of the year, but there are cautious growth expectations for the second quarter.

The capacity utilisation rate in manufacturing has improved somewhat. The amount of unused capacity is nevertheless higher than average. In the latest survey, 64% of respondents indicated that their production capacity was fully utilised (53% in January).

Further shrinkage in labour force expected

Construction and services companies responding to the survey reported a fall in the number of employees in the early months of the year. The employment trend in manufacturing was marginally better than previously estimated, with the number of employees remaining almost unchanged.

Expectations for the coming months are still rather cautious. The labour force is expected to shrink a little in all three main sectors.

Manufacturing companies expect sales prices to be fairly stable in the coming months. Costs have increased slightly, but this trend is expected to end in the late spring. In construction the price level has declined, but the downward pressures are expected to slacken a little. Costs are predicted to rise slightly in late spring. Sales prices for services companies have remained almost unchanged and are expected to decline by a small amount in the coming months. The cost level has risen somewhat, but this rise is expected to almost come to a standstill in the coming months.

Profitability expected to remain at present level

Profitability improved somewhat in January–March for the manufacturing and services companies that took part in the survey.In construction, profitability declined a little. No major changes in profitability are expected in the coming months. It is anticipated that profitability will improve marginally in manufacturing, while in services and construction it will be almost unchanged.

Insufficient demand is still a considerable obstacle to the growth of business operations. Demand was felt to be insufficient by 42% of manufacturing companies responding to the survey. The corresponding proportion in construction was 58% and in services 41%. Reported recruitment difficulties were fairly minor, with the exception of a number of service sectors. Twelve per cent of all service companies reported recruitment difficulties. In manufacturing and construction a shortage of labour was less common. By contrast, 7% of manufacturing companies expected financing problems to impede the development of their business.