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Economic Outlook 4/2024

Global and Finnish Economic Outlook

Order intakes remain weak – no sign of a pickup in demand

Published 8th November 2024

The Finnish technology industry continued to face a very difficult economic situation throughout the autumn, and conditions look set to remain challenging for the rest of the year. As yet, there are still no signs of the long-awaited turn for the better. The situation has remained difficult – and has even worsened – in the technology industry’s largest export markets.

The growth forecast issued by the International Monetary Fund (IMF) in October did not bring any major changes to the outlook for global economic growth. The economy is still projected to grow by 3.2 per cent this year. The forecast for 2025 was lowered by a tenth to the same 3.2 per cent.

Although global forecasts have remained unchanged, there have been some developments at continental level. While Europe’s growth forecasts have lowered even more, growth in the United States is now predicted to be stronger than originally expected. The eurozone is projected to grow by 0.8 per cent in 2024 and 1.2 per cent in 2025. The corresponding figures for the United States are 2.8 and 2.2 per cent.

In its most recent forecast, the IMF expects inflation to stabilise at about 2 per cent in developed countries.

European industry is still in a very tight spot

Purchasing Managers’ Indices (PMIs) give a very bleak view of the current situation in European industry. The long-awaited turnaround is still not on the horizon.

Ever since the spring, a gradual upswing has been expected during the autumn and winter on the back of falling interest rates. These expectations have not, however, been met. Even the latest (October) PMIs for the eurozone’s industrial sector show no signs of improvement.

The situation has in fact worsened in many countries as autumn has progressed – so quite the opposite of expectations.

Employment figures in Europe are also beginning to reflect the weak economic cycle. More and more companies are reporting shrinking order books, to the extent that labour force adjustments must be made. Lower levels of employment in the industrial sector will likely reduce salary pressures in Europe.

Germany – the sick man of Europe

Germany – one of Finland’s key trading partners and a main driver of the entire European economy – is currently experiencing serious difficulties. The outlook for Germany’s industrial sector is exceptionally poor, production has contracted and personnel reductions are being made.

Representatives of German technology industries are also forecasting a further contraction in production next year. If this forecast is realised, the Finnish technology industry will also face a far more difficult year than we are currently anticipating.

Germany’s industrial sector is being impacted by high energy prices, issues in the automotive industry and tough competition from China – but also weakened demand from China. Poor cost-competitiveness is also a major issue in Germany. The German labour market has generally been quick to adapt to the challenge posed by weak cost-competitiveness, but its other problems are not so easy to solve, as they are more long-lasting and structural in nature.

Economic upswing in springtime is once again turning to zero growth in the eurozone (Economic Outlook November 2024)

Purchasing Managers' Indices (PMIs) in Europe and USA for private sector (services + manufacturing). If the index value exceeds 50 points, it forecasts growth. If the index value is below 50, production is expected to decline.

Source: S&P Global, Macrobond
Last modified 14.11.2024 at 15:25
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There’s no sign of improvement in the eurozone’s manufacturing sector (Economic Outlook November 2024)

Purchasing Managers' Indices (PMIs) in Europe for private sector (services + manufacturing). If the index value exceeds 50 points, it forecasts growth. If the index value is below 50, production is expected to decline.

Source: S&P Global, Macrobond
Last modified 14.11.2024 at 15:43
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Industrial development seeks a new direction in the United States

Like in many other European countries, demand in Finland’s technology industries has this year been supported by strong demand from the United States. However, US PMIs have been sending a concerning message over the past few months: there has also been a downswing in industrial production and employment in the United States. Although this may merely be a reflection of the uncertainty surrounding the upcoming presidential elections, it is a worrying trend from the perspective of aggregate demand.

The Finnish technology sector is dependent on demand for exports, and overall trends for the coming months do not look very promising. We should not, therefore, expect to see any kind of upswing before the end of the year.

Interest rates are falling, inflation is stabilising – yet no growth is on the horizon

The 12-month Euribor had risen slightly above 2.5 per cent when this report was being written. The European Central Bank (ECB) has lowered its key interest rate three times this year. The deposit interest rate for commercial banks was lowered to 3.25 per cent at its October meeting. The market therefore expects a further decrease in interest rates at future interest rate meetings.

The price of money has now remained considerably lower than usual for a long time. In fact, market interest rates can no longer be lowered if we want to reach target inflation of two per cent. And although interest rates never have an immediate impact on the real economy, it is concerning that there are still no signs of recovery on the horizon. The situation has, in fact, worsened – in both the industrial and service sectors.

Purchasing Managers’ Index (PMI) for the manufacturing sector (Economic Outlook November 2024)

Purchasing Managers' Indices (PMIs) for manufacturing. If the index value exceeds 50 points, it forecasts growth. If the index value is below 50, production is expected to decline.

Source: S&P Global, Macrobond
Last modified 14.11.2024 at 15:41
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Inflation and key central bank interest rates in the USA , eurozone and Finland (Economic Outlook November 2024)

Source: FED, ECB, Macrobond
Last modified 14.11.2024 at 15:28
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No recovery until the spring

The latest data strongly suggests that it will be a difficult winter. Although the anticipated upswing clearly appears to be delayed, and will likely be less than predicted, we except to see at least gradual improvements during 2025.

Gradual weakening seems to be a special characteristic of the prevailing recession. Changes in economic cycles are usually felt quite quickly in the industrial sector – and downswings in particular. Yet now it has been more of a gradual deterioration. At the same time, the weak economic cycle has already lasted for quite some time in the industrial sector. The third quarter of 2023 was the first noticeably weak quarter in terms of orders. We can now say that demand has remained low for at least a year, and the figures for the last quarter of 2024 do not look particularly promising either. After a long and gradual economic downswing, we should probably expect a similarly gradual upswing – and hopefully it will also be long.

Technology companies still judge their economic situations to be extremely poor – but with hope for the future

The Business Tendency Barometer published by the Confederation of Finnish Industries (EK) in October tells a familiar story for the entire manufacturing industry. Yet companies are showing a little more hope for the future. A small majority of respondents believe that things are taking a turn for the better. For several quarters now, companies’ hopes for the future have been noticably better than their assessments of the current situation. However, the tenacity of the recession is evident from companies’ responses, as their assessments of the current situation also fell in comparison to the last survey. Although expectations for the future were just about on the plus side, the majority of the sector’s more concrete indicators (orders, employment) were still very much in the red.

So while there may be hopes and expectations for a turnaround, there are still very few signs of a concrete upswing.

The results of the TechnoBaro survey carried out by Technology Industries of Finland in mid-September support this general picture. According to the survey, the situation worsened for technology companies during the autumn, but was expected to stabilise in late 2024. An optimist would look at the current situation and say that we have now reached the nadir and the only way is up. A pessimist would remind us that we’ve been saying that since the summer.

The cost-competitiveness of Finnish work remains stable – the coming years may prove more difficult than anticipated

Finland’s cost-competitiveness has remained fairly stable over the last few years in relation to its main competitors. Although cost-competitiveness has been burdened by exceptionally weak trends in Finnish productivity, this has been compensated for by slightly lower pay increases in comparison to other countries.

Pay increases have recently been quite brisk in Central Europe, but are forecast to slow substantially over the coming years. As mentioned previously, the economic situation in Germany is extremely difficult. But as employment decreases, so do salary pressures. Companies in Germany in particular have generally been quick to adjust salaries to changes in the real economy.

It seems that maintaining a good level of cost-competitiveness will require far more conservative salary policies over the coming years – and that also applies to Finland.

Manufacturing companies’ expectations have slightly improved (Economic Outlook November 2024)

Manufacturing business situation and outlook, seasonally adjusted balance figure

Source: EK Business Tendency Survey
Last modified 14.11.2024 at 15:28
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In Europe, industrial production has continued to be sluggish (Economic Outlook November 2024)

Volume of industrial production, index 2019=100

Source: Eurostat, Macrobond
Last modified 14.11.2024 at 15:26
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Technology Industries in Finland

Order intakes remain weak – still no upswing in demand

In 2023, the turnover of technology industry companies in Finland declined by approximately two per cent on 2022. Turnover decreased in the electronics and electrotechnical industry and the metals industry. Turnover grew in mechanical engineering, the consulting sector and information technology. Turnover in Finland amounted to approximately EUR 101 billion in 2023. Last year, turnover began to decline due to lower producer prices.

In January–July 2024, turnover in the Finnish technology industry was five per cent lower than twelve months earlier. The combined production volume (turnover deflated by the change in producer prices) of companies in the manufacturing sector (the electronics and electrotechnical industry, mechanical engineering, metals industry) was four per cent lower in January–May 2024 than in the corresponding period of last year.

Turnover of the Technology Industry in Finland (Economic Outlook November 2024)

Seasonally adjusted turnover index, 2010=100

Source: Statistic Finland, Macrobond
Last modified 14.11.2024 at 15:44
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Turnover of the Technology Industry in Finland, Percentage Change for the Latest Time Period (Economic Outlook November 2024)

Source: Statistics Finland
Last modified 14.11.2024 at 15:45
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Production Volume of the Technology Industry in Finland (Economic Outlook November 2024)

Seasonally adjusted volume index, 2010=100

Source: Statistics Finland, Macrobond
Last modified 14.11.2024 at 15:39
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Production Volume of the Technology Industry in Finland, Percentage Change for the Latest Time Period (Economic Outlook November 2024)

Seasonally adjusted volume index, 2010=100

Source: Statistics Finland
Last modified 14.11.2024 at 15:40
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The monetary value of new orders in the July–September period was two per cent lower than in the previous quarter, but ten per cent higher year-on-year.

The balance figure for tender requests stood at -13 in October. Data collected in October indicates that aggregate demand has remained weak throughout the autumn. An upswing in the number of calls for tenders has usually been a moderately reliable sign of recovery. As yet, there have been no signs of this. The balance figure for tender requests has been negative for an exceptionally long time – for no less than nine consecutive quarters. There has not been another period of such prolonged low demand since records began.

At the end of September, the value of order books was on par with the end of July and nine per cent higher than in September 2023.

On the basis of order trends to date, the turnover of technology industry companies is expected to contract over the next six months.

At the end of September, technology industry companies in Finland employed 0.4 per cent fewer people than at the end of June. The industry employed approximately 330,900 people at the end of September. According to Technology Industries of Finland’s personnel survey, approximately 20,500 employees were affected by lay-off procedures at the end of September.

Fewer new personnel were recruited, with recruitments totalling 7,600. Some companies were increasing their payroll, while others were hiring new employees due to retirements and employee turnover.

Development of personnel numbers and recruitments in the technology industry in Finland (Economic Outlook November 2024)

20 500 employees affected by temporary lay-offs 30th September 2024.

Source: The Federation of Finnish Technology Industries’ labour force survey
Last modified 14.11.2024 at 12:35
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Tender requests received by the technology industry companies in Finland (Economic Outlook November 2024)

The latest questionnaire in October 2024. Balance figure = the share of companies receiving more requests – the share of companies receiving less requests. Negative balance figure indicates that demand has weakened when compared to a situation three months ago.

Source: The Federation of Finnish Technology Industries’ order book survey
Last modified 14.11.2024 at 15:42
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Value of new orders in the technology industry in Finland (Economic Outlook November 2024)

Million euros, at current prices. Data is not including metals industry, game industry and data center companies

Source: Order Book Survey by the Federation of Finnish Technology Industries
Last modified 14.11.2024 at 15:49
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New Orders in the Technology Industry in Finland, Percentage Change for the Latest Quarter (Economic Outlook November 2024)

Source: Order Book Survey by the Federation of Finnish Technology Industries
Last modified 14.11.2024 at 15:34
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Order Books in the Technology Industry in Finland (Economic Outlook November 2024)

Million euros, at current prices

Source: Order Book Survey by the Federation of Finnish Technology Industries
Last modified 14.11.2024 at 15:36
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Order Books in the Technology Industry in Finland, Percentage Change for the Latest Quarter (Economic Outlook November 2024)

Source: Order Book Survey by the Federation of Finnish Technology Industries
Last modified 14.11.2024 at 15:38
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Economic Outlook on technology industry’s sub-sectors

ECONOMIC OUTLOOK 4 | 2024

Information based on the situation on 8 November 2024
Petteri Rautaporras, Director, Chief Economist, tel. +358 50 304 2220
Hanne Mikkonen, Economist, tel. +358 44 0296 152

Download all graphs of this Economic Outlook in power point format from this link.

Next Economic Outlook will be published 6th February 2025 at 10.00 am.