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Finnish companies see challenges ahead, but outlook has improved

Most companies now anticipate an economic upturn, while consumer confidence is the strongest in over two years.

Miehet katselevat vaatekaupassa alennuksessa olevia tuotteita.
Consumer spending is expected to be a key driver in Finland's GDP growth this year. Image: Henrietta Hassinen / Yle

A Business Tendency Survey carried out by the Confederation of Finnish Industries (EK) in January shows that expectations of economic recovery from the impact of the coronavirus crisis are on the rise.

While this latest survey confirms that the downturn in the business cycle has persisted, the outlook is now seen as being clearly better than the situation last autumn.

"The coronavirus pandemic is still the biggest factor affecting economic forecasts in the coming months, but the expected upturn in the business cycle would suggest that we can see light at the end of the tunnel. Whether the forecasts prove realistic depends entirely on the pace at which the vaccines are rolled out," says Sami Pakarinen, Chief Policy Advisor at the Confederation of Finnish Industries, in an EK release published on Wednesday.

The business outlook has improved on average across all sectors, but especially in manufacturing. Companies in the services industry, which have been particularly hard hit by the pandemic, also show a brighter outlook.

"The bounce-back of the Finnish economy will take place hand in hand with the global economy. In manufacturing, the worst seems to be over, while services are still having serious problems. The difficulties in construction began before the coronavirus pandemic started and the sector is still not seeing any respite. The differences between different sectors and individual businesses can still be quite dramatic," Pakarinen continues.

Low demand has shown some slight improvement, but still remains the biggest obstacle to growth in the Finnish economy.

Of the 1,391 companies responding to the EK survey, 38 percent felt that insufficient demand was a problem. The second biggest problem is a shortage of labour. Despite the downturn in the business cycle, 14 percent of respondents reported that finding qualified staff was a hindrance to growth.

Consumer confidence strong

Statistics Finland reported on Wednesday that consumer confidence in Finland in January was at its highest level in over two years.

The indicator for January stood at -0.9, well above the long-term average of -1.8, and far in front of the -4.6 registered in December and -4.8 in November.

Expectations for Finland’s national economic development strengthened most among consumers. Expectations of improvements in personal finances were also unusually bright in January with many saying they intended to spend on durable goods.

Consumer views concerning the development of the unemployment situation also improved, but were described by Statistics Finland as "still at a gloomy level". Unemployment or lay-offs were still seen as a potential threat.

Nordea projecting 3 percent growth

Nordea Bank issued a review on Wednesday projecting consumer-driven 3 percent growth in Finland's GDP this year and 2 percent growth in 2022. This would mean that Finland's economy is likely to return to the pre-coronavirus level by late 2021.

Nordea is looking to improvements in employment and income to drive domestic consumption.

According to Nordea, economic recovery, both here and globally, still depends on the successful vaccination of at-risk groups.

"The main downside risk associated with the forecast is delayed vaccinations. The longer the crisis lasts, the longer its adverse effects the long-term economic outlook," Nordea' Chief Economist Tuuli Koivu stated in a press release.

The Finnish economy has started to recover quickly from the shock caused by the pandemic, although the recovery slowed down towards the end of the year with the second wave of the coronavirus.

The bank's forecast is based on the assumption that the coronavirus crisis will remain moderate in Finland this spring, subside in the summer, and that no new sweeping restrictions will be imposed in the autumn.

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