No turnaround expected in the economy

Current economic conditions exceptionally gloomy for Finnish companies

The April Business Tendency Survey conducted by the Confederation of Finnish Industries (EK) revealed that for Finnish businesses the current economic situation is exceptionally gloomy. The sharp downward slide at the start of the year was in fact even more dramatic than anticipated in the previous survey.

What is more, no turnaround looks likely in the next few months. On the contrary, survey respondents in all sectors felt that the situation will probably deteriorate further. Though the drop in manufacturing output is expected to be less sharp than at the start of the year, there are still no signs of any real revival. The employment situation in particular is expected to worsen significantly.

In April, the business outlook balance indicator for manufacturing was -26, compared with -41 in January. Only 3% of the survey respondents expected an improvement in the next few months. In contrast, 29% expected the gloomy situation to continue. About two thirds, or 68%, of the respondents felt that there would be no change in their economic situation over the summer.

The business outlook balance indicator for the construction sector was -31 in April (-68 in January). Some 11% of the respondents anticipated an improvement, while 42% felt the decline would continue.

The business outlook balance indicator for service companies in April was -33 (-34 in January). An improvement in the situation was expected by 6%, and a worsening by 39%, of the respondents.

Orders not yet picking up, output continuing on downward track

Manufacturing companies received very few new orders in the first few months of the year, leaving the level of outstanding orders to sink further. In construction, too, the volume of orders continued to fall sharply. New orders are expected to be down further in the next few months, to a level slightly below that for January-March.

In the first few months of the year, there was an exceptionally sharp fall in output by manufacturing companies, which turned out to be even more dramatic than had been anticipated in the previous Business Tendency Survey. Assessments for the next few months are still pessimistic, but the decline in output is nevertheless expected to be less steep than in January-March.

Construction output plunged sharply in the first few months of the year, and the forecast for the coming months indicates a continuation of this trend. The downward turn in the economy also extended to the service sectors during January-March, when sales in these sectors began to decline. Sales are forecast to decline somewhat further in the coming months.

Capacity utilisation rates in manufacturing companies continued to decrease slightly and are now at a very low level. Only 37% of businesses are now operating at full capacity (40% in January). Correspondingly, 63% of businesses had unused resources.

Labour force shrinkage still accelerating

Substantial personnel cuts were made in all the main sectors during the first few months of the year. The cuts in manufacturing and construction were especially deep.

The deterioration in the employment situation is expected to be even more marked in the coming months. In the service sectors the labour force reduction will nevertheless be significantly less severe than in manufacturing and construction.

Profitability weakening considerably

In manufacturing and construction, the sharp fall in sales prices is expected to continue on the same track seen in the early part of the year. Although costs are also falling slightly, profitability is weakening considerably. Service companies anticipate that costs will continue to rise, despite the rate having slowed in the first few months. The start of the year saw service companies’ sales prices begin to decrease, and this is expected to continue in the next few months. Profitability is weakening considerably in the service sectors as well.

The shortage of skilled labour has almost receded, with the exception of certain service sectors. Financing problems have become more widespread, but it is still insufficient demand that is seen as clearly the most important obstacle to expansion.

In April, only less than 1% of manufacturing companies were suffering a labour shortage. Despite the downturn, 6% of construction companies still reported experiencing problems with labour availability. In the service sectors the figure was also 7%.

Insufficient demand was stated as an obstacle by as many as 63% of the responding manufacturing companies, while in construction the figure was 71% and in the service sectors 42%.

Although financing problems have become more common, only 5% of manufacturing companies felt these to be the most significant obstacle to operations. In construction the figure was 4%, and in the service sectors 2%.

EK Business Tendency Survey

The Confederation of Finnish Industries EK's Business Tendency Survey is published four times per year. The survey has been carried out regularly since 1966. 1 109 companies employing ap-proximately 280 000 people responded to the survey carried out in January.

For additional information, please contact:
Senior Economist Penna Urrila,
tel. +358 9 4202 2606 (09) 4202 2606