Business outlooks remain at crisis period level: EK

Finnish businesses’ estimates of the economic cycle have remained at the level of the crisis period, according to the January Business Tendency Survey published by the Confederation of Finnish Industries (EK) on Monday.

By contrast, business expectations have improved since last autumn, but are still clearly low-key.

The impact of the economic downturn is particularly hard on construction and manufacturing.

The service sectors, on the other hand, have supported the economy and, in particular, employment in recent months.

“The latest data confirm the view that the first part of the year will be very difficult. In the coming months, employment will decline and companies will become less profitable with the lack of demand. On the positive side, however, production is not expected to contract. Fortunately, the business outlook also suggests that the situation may start to improve towards the end of the year,” said Sami Pakarinen, Director of the Confederation of Finnish Industries.

Production has declined in construction and manufacturing, and expectations regarding the coming months are pessimistic. Sales performance has only held up in the service sectors. The high volume of unsold finished homes and the thinning of manufacturing order books cast a large shadow over the performance of these main sectors.

“Of the main sectors, construction is experiencing the greatest difficulties. The last time the situation was this bad in the construction of new housing was in the 1940s. Increased supply and rapidly rising interest rates have reduced demand for new housing. The rapid rise in interest rates is also reflected in investments and inventories in other sectors. Businesses are reducing their inventories because the opportunity cost of committed capital has risen. At the same time, of course, investments are being considered more carefully,” Pakarinen added.

The main obstacle to growth is still insufficient demand. As many as 51 per cent of the responding companies reported that insufficient demand was an obstacle to their growth. Order backlogs in manufacturing and construction have declined to clearly below the normal level, which is taking a direct toll on production. The slowdown in construction and manufacturing is hampering the launch of investments, which will inevitably have long-term effects on Finland’s economic growth.

“The difficult economic situation is further hitting business profitability. This has already been reflected in increased bankruptcies. The labour force will continue to shrink in all the main sectors. At the same time, problems with labour availability have eased rapidly,” said Pakarinen.

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. The survey concerns activity in Finland. In January 2024, the EK asked businesses to evaluate their business outlook for the fourth quarter of 2023. A total of 1,256 companies employing about 280,000 people in Finland responded to the survey.