Technology industry outlook: Uncertainty dims growth outlook, but no major impact seen yet

Announcement
Global economic uncertainty dims the growth outlook for technology industry, but no major impact has been seen yet. This is how Jukka Palokangas, Chief Economist at the Federation of Finnish Technology Industries, summarises the current situation.

Order books continued to strengthen towards the end of 2018, and the volume of new orders in technology industry increased from the preceding quarter. However, the number of tender requests took a downward turn during the autumn, and recruitment activity also slowed down towards the end of the year. Skills shortages may partly explain the reduced level of activity.

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

According to the survey, the turnover of technology industry companies in Finland totalled EUR 77 billion in 2018, an increase of 6 per cent compared to 2017. About half of the increase was attributable to volume growth and half to the rising world market prices of raw materials and components. The turnover of technology industry companies is expected to be higher in early 2019 than in the corresponding period last year.

The companies that took part in the Federation of Finnish Technology Industries’ survey of order books reported that the monetary value of new orders between October and December was 9 per cent higher than in the preceding quarter, but 13 per cent lower than in the corresponding period in 2017. The drop is due to the ship orders in the reference period.

At the end of December, the value of order books was 3 per cent higher than in September, and 10 per cent higher than in December 2017. 

However, technology industry market situation also reflects the weakened global growth expectations and uncertainty. The number of tender requests received by technology industry companies decreased markedly throughout the autumn. There was a slight increase in January.

Technology industry companies recruited a total of 50,000 new employees in 2018. In 2017, total recruitments came to 42,500. Recruitment activities decreased towards the end of the year and personnel numbers did not increase notably. Some companies were recruiting to increase their personnel, while others were hiring new employees due to retirements and employee turnover.

Lift needed in investments

According to the CEO of the Federation of Finnish Technology Industries, Jaakko Hirvola, Finnish technology companies have performed very strongly considering that the growth of industrial production stalled in the EU already last year, and new orders took a downward turn in the euro area towards the end of the year. The global economic situation is very fragile at the moment: IMF has warned that uncertainty has reached an exceptional level.

“Finland needs to remain on the growth path and a achieve an even higher employment rate to be able to finance its welfare spending. The next government needs to identify effective means to support growth, boost investments and give companies confidence in the future. At the same time, it has to take a responsible stance on the sustainability of public finances,” Hirvola states.

He calls for systematic development of research, development and innovation: Finland cannot reform, tackle environmental challenges and achieve long-term growth without the creation and utilisation of new knowledge, expertise and innovative solutions. Technology Industries of Finland has proposed an EUR 300 million permanent increase in public RDI funding. Hirvola points out that this is the expert opinion of professor Erkki Ormala based on his report on Finnish innovation policy.

“Finland lags behind competitor countries in terms of productivity development, which is due to lack of investments. Investment rate (fixed capital formation in relation to gross value added) remains at a low level, and the situation is worse still for intangible investments: their level has nearly halved since 2008 in Finland. This situation is untenable”, Hirvola emphasises.

According to Hirvola, tax measures should also be considered to encourage investment. ETLA, the Research Institute of the Finnish Economy, is in the process of reviewing the effects of free depreciation policy. In this model, companies can choose more freely when they depreciate their investment expenses for tax purposes. The company can expense the investment all at once or over a period of several years.

Balanced consideration at the negotiation table

According to Minna Helle, Director, Labour Market at the Federation of Finnish Technology Industries, we need to pay close attention to the economic situation also because of the wage negotiations that will take place in Finland in 2019.

“Balanced consideration is required at the negotiation table to avoid overreactions, considering that the economic cycle is about to turn,” Helle warns.

She praises the competitiveness pact, which significantly improved the competitiveness of companies and accelerated economic growth. Our cost competitiveness is finally heading to the right direction, but there is more room for improvement. As stated by the Bank of Finland recently, in comparison to long-term averages, Finland’s competitiveness is still not strong.

“It is obvious that future collective agreements must support competitiveness, growth and high level of employment in Finland. At the same time, it is important to promote flexibility and local agreement. No two companies are the same,” Helle points out.

Finnish technology industry outlook 01/19 -slides (pptx)

Economic outlook, full report (pdf)

Further information:

Jaakko Hirvola, CEO, phone +358 40 063 3751

Jukka Palokangas, Chief Economist, phone +358 40 750 5469

Minna Helle, Director, Labour Market, phone  +358 40 341 4884