Outlook for the economy remains fairly subdued
According to the Business Tendency Survey conducted by EK in April, Finnish business growth stabilised in the early part of the year following the increase in uncertainty last autumn. The current business situation is described as somewhat weaker than average in all the main sectors.
The business outlook for the coming months is cautious in all the main sectors but has improved from the January level. No substantial changes in the general economic conditions are expected in the next six months.
Output and sales projections for the coming months predict very slow growth at best. Gradual acceleration of growth is expected to take place in late summer and autumn in manufacturing and services. However, employment expectations are very low, and the labour force is expected to decline in all but the service sectors.
In April, the business outlook balance indicator for manufacturing was +9, up from -6 in January. In all, 18% of respondents expected an upturn during the summer and early autumn, while 9% felt that the economy would deteriorate during this period.
The business outlook for construction improved to -5 in April from -32 in January. A total of 11% of companies anticipated an upturn, while 16% believed that the situation would deteriorate.
The business outlook for services improved to +2 in April from -8 in January. An upturn was forecast by 11% of respondents, while a decline was expected by just 9%.
Output scarcely grew at all – expectations until late summer cautious
New orders received by manufacturing companies that responded to the survey remained at the same level during the first quarter as at the end of last year. In construction, the number of orders declined slightly compared with the end of 2011. In both manufacturing and construction, order books were reported to be slightly below average.
Finished goods inventories decreased in manufacturing to normal levels. The volume of unsold dwellings owned by construction companies rose from low to average.
Manufacturing companies that responded to the survey expect the number of new orders they receive during the second quarter to remain stable. In construction, however, the volume of orders is expected to continue to decline slightly.
In manufacturing, output growth was rather slow at the beginning of the year, but slightly better than the low expectations of the previous survey. Output is expected to remain on the rise in the coming months, though the rate is expected to be sluggish. There are expectations of a tentative acceleration in growth in late summer and autumn. Construction output began to decline slightly in the early part of the year, and is anticipated to remain steady in the coming months.
In services, sales were up moderately in the early months of 2012, as at the end of 2011. The rate was slightly quicker than forecast three months ago. Nevertheless, growth is predicted to remain slow in the coming months, but growth expectations for late summer are slightly better, as is the case for manufacturing.
For manufacturing companies, the capacity utilisation rate recovered slightly from a dip in the autumn, but is still quite clearly below the long-term average. In April, 35% of manufacturing companies had unused capacity (43% in January).
Employment expectations rather cautious – total labour force to decline
In the service sectors, the labour force growth almost stopped during the early part of the year. In construction, the total number of employees stayed the same, and in manufacturing it decreased slightly. Nevertheless, the employment trend as a whole was marginally better than forecast three months ago.
Employment growth expectations are quite cautious. In both manufacturing and construction, the labour force is projected to decline slightly during the late spring and summer, and only service companies expect their labour force to remain steady.
General picture lacklustre – but some companies suffering from labour shortages
Sales prices started to rise gradually in the manufacturing sector, and in services the rate of increase accelerated. In construction, sales prices remained unchanged. Costs rose quite strongly in all three main sectors.
In the coming months, the rise in prices is forecast to slacken off in services. Prices are expected to rise slightly in manufacturing and construction. Cost pressures are expected to continue to be common despite an expected slowdown in the pace of cost increases in both manufacturing and services.
Profitability remained almost unchanged in all the main sectors during the early part of the year, and it is not expected to change substantially in the near future.
In the construction and service sectors there are quite a number of companies experiencing insufficient demand and labour shortages, which is a reflection of the incoherence in the economy. In manufacturing, weak demand was clearly the most common factor holding back business activity. Over one third of manufacturing and construction companies reported weak demand, and in the service sectors the corresponding figure was one in five companies. A labour shortage was experienced by 7% of respondents in manufacturing, 15% in services and as much as 39% in construction.
EK Business Tendency Survey
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. 987 companies employing approximately 260,000 people in Finland responded to the April 2012 survey.
Penna Urrila, tel. +358 (0)9 4202 2606
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