Press release

The threat of recession is growing – technology industry holding up thanks to good order intake

Economic indicators suggest that Europe and other advanced economies are heading towards a recession late this year and during next year. In Finland, technology industry’s order books remain strong, and the level of new orders positive, but first signals of decreasing demand have already emerged.

This information is based on the recent order book and personnel survey published by Technology Industries of Finland. 

The monetary value of new orders in the April-June period was 10 per cent higher than in the previous quarter and 12 per cent higher year-on-year. The quick rise of producer prices has contributed to the increase in the value of orders.

However, the fact that export orders in mechanical engineering, which is the largest technology industry sector, have fallen significantly from the previous quarter and also year-on-year, is a clear signal of waning demand.

The number of tender requests also indicates that demand is levelling out. The balance figure for July was +4. The balance figure has now seen four consecutive quarters of decline.

At the end of June, the value of technology industry order books was 2 per cent higher than at the end of March and 8 per cent higher than in June 2021.

The long duration of the favourable economic cycle has boosted employment. Technology industry companies currently employ more than 336,000 people in Finland, wich is an all-time record.

Worrying signals from the eurozone

Finland cannot escape the impact of a slowdown in global economic growth, but usually there is a slight delay.

“For instance, signals from the eurozone are very worrying at the moment: according to Purchasing Managers’ Indices, the last time new orders shrank this dramatically was during the euro crisis in 2012 – if we ignore the drop that took place in the beginning of the COVID crisis. Easing of price pressures and rising stocks of inventory also indicate that demand has decreased. Naturally, there are large differences between individual companies,” says Petteri Rautaporras, Director, Chief Economist at Technology Industries of Finland.

According to Rautaporras, we should also be prepared for a situation where demand stalls even quicker than estimated. For example, the situation in our main export market, Germany, is very critical and the energy crisis can have unexpected consequences. The high price of energy and availability problems raise the costs of industry almoust everywhere.

“However, it is good to remember that companies can do well even if growth is slowing down, as long as we look after their cost-competitiveness and capacity for renewal and ensure a strong position in the value chains of green transition. In this regard, we hold the trump cards”, Rautaporras points out.     

No need for external help in negotiations

Jaakko Hirvola, the CEO of Technology Industries of Finland, emphasises the importance of collective agreements.

“The round of negotiations that will take place this autumn in many ways holds the key. Everyone is well aware of the fact that accelerating price inflation by wage inflation will serve nobody’s interests, and will only erode purchasing power. While I understand the concern over purchasing power, we will gain the best results by keeping a cool head and introducing solutions that support competitiveness – as has been consistently pointed out by economists,” Hirvola states.

According to Hirvola, it is important that individual trade unions start their own negotiations swiftly and move on from the days of national income policy agreements, which are a thing of the past. Best solutions will be identified in sectoral and company-specific negotiations.

“Easing the taxation of employment income can improve purchasing power, and high taxation in Finland is a structural problem that will need to be addressed. The government will of course make its own assessment of taxation, but now the solution is not timely, because it should not be linked to negotiations between the labor market parties.

We have no problem with the government making decisions on taxation during the budget session or, if preferred, at a later date. However, linking the tax solution to wage negotiations or any attempts by the ministries to define the content of the negotiations from outside the negotiating table will not be acceptable. That would be a stale reminder of the past,” Hirvola concludes.

Economic Outlook 3/2022

Further information:
Jaakko Hirvola, CEO, phone +358 40 063 3751
Petteri Rautaporras, Director, Chief Economist, phone +358 50 304 2220