14.9.2023 klo 09:00


Following an exceptionally negative first half of the year, the expectations of small and medium-sized enterprises regarding the economy have almost returned to last year’s slightly negative level. The alleviation of the energy crisis and the levelling out of the impacts of Russia’s war of aggression have seen expectations improve, even though the level still remains negative. This means that a slight weakening of the economy is expected during the following year. The exceptional past few years and the current uncertainty regarding the economy are still reflected directly in the expectations of small and medium-sized companies regarding the economic trends in the short term.

In part, the weak expectations are explained by Russia’s war of aggression against Ukraine, the record-fast interest level increase and the high cost level for a second year already. The direction of the entire European economy largely depends on the development of these factors. The progress of the war is difficult to forecast, and its consequences have a significant impact on the uncertainty of the operating environment both in Finland and elsewhere.

The balance figure for confidence in the economy increased by 12 units since spring and now stands at -6. Twenty-one per cent of SMEs expect the economy to improve in the next 12 months, whereas 27 per cent expect it to decline. Slightly over half of SMEs expect the economic trend to remain unchanged.

Expectations of increased revenue increase, uncertainty reduces investments

While the general expectations have increased from last spring’s record low, expectations regarding the development of revenue have become stronger. The balance figure has increased by eight units since the spring and now stands at nine.

The expectations of small and medium-sized enterprises towards profitability have decreased strongly over the past few years as the general confidence in the economy has declined. The uncertainty over the future has subsided to some degree after the exceptional winter and the first half of the year, but the balance figure for profitability expectations is still negative, -10. Expectations regarding profitability show, however, a slight improvement from spring 2023 in all the main industries.

A slightly higher number of SMEs also expect an improvement in their solvency. Following the exceptional year last year, expectations regarding the development of solvency have started a slow recovery: the balance figure increased by seven units since the spring 2023 barometer and now stands at three.

SMEs expect a significant reduction in investments in the near future. As a result of the weaker expectations regarding the economy and growth, all the main industries have a higher number of companies reducing their investment levels than of those expecting to increase their investments. The balance figure for expected investments is still strongly negative, -17. The poor development of expected investments is likely related to the exceptionally high uncertainty caused by Russia’s war of aggression. The continued inflation and the resulting rapid increase in the interest level have a direct impact on the investments and investment plans of small and medium-sized enterprises.

SMEs cautious about increasing the number of employees

The considerable negative impacts of the war and the highly uncertain future outlook have lowered the expectations regarding staff increases to some degree. Only 14 per cent of SMEs plan to hire more staff over the next year. On the other hand, 12 per cent of companies expect a reduction in the number of their employees.

The balance figure for expectations stands at one, which is unchanged from spring 2023. The majority, or 74 per cent of the small and medium-sized enterprises, still expect to keep their current number of employees. The changes in the number of employees are also connected to investment expectations since the availability of skilled employees is a precondition for investments. On the other hand, investment plans are one of the underlying reasons for increasing the number of staff.

Rapid increase of costs is decelerating

The expectations regarding increased production costs have reduced slightly from the peak values last autumn. The balance figure for the expectations still remains high. The price elasticity of the companies’ own products and services has also increased, but the growth speed is decelerating. The increase of price elasticity is not enough to compensate for the increased prices of intermediate products, and production costs are expected to increase almost one and a half times faster than the prices of final products. It is somewhat surprising that the situation is alleviated by the moderate pay increase expectations despite the labour shortage in many sectors.

The situation is challenging because the production costs are at the same level as in conditions of strong economic development, and they are expected to increase at the same rate or even faster than in such conditions. Companies now have to adapt to similar cost increases under very uncertain conditions.

Growth potential through renewal and research and development

Sustainable economic growth, the general employment situation and the progress of profitability of the national economy depend on the private sector’s ability and possibilities to operate and develop. Unnecessary restrictions to the operating conditions or competition have a negative impact on the growth opportunities of the national economy and on employment. Similarly, supporting the companies’ growth opportunities is linked to better employment and a relief in the challenges of the public economy.

As a positive development, the decline in the number of growth companies, which has been going on for a long time, has halted, at least for now. The share of small and medium-sized enterprises which seek growth intensively and where possible increased by 2 percentage points. The share of growth companies is modest, however, and the long-term declining trend is a cause for concern.

Digitalisation and robotisation, along with other technological development, are progressing rapidly despite the economy and have an increasingly strong impact on the daily operations of companies. Fifteen per cent of SMEs have introduced new technology over the past year, and 43 per cent have invested in digitalisation. In all sectors, slightly over half of the companies had arranged training for their personnel. Furthermore, three companies out of ten have brought new products or services to the market.

In this barometer, research and development (R&D) refers to creative and systematic actions to increase knowledge and using knowledge for new applications. A relatively high percentage of SMEs, 22 per cent, report that they are engaged in some form of research and development. As could be expected, differences in the extent of R&D operations vary greatly between sectors. The highest percentage is found in the industry, with 39 per cent of SMEs conducting R&D activities.

More than half of small and medium-sized enterprises find that they could improve their sales and marketing competence. Personnel development and training as well as leadership are also important areas of development. The biggest obstacle for the development of operations, on the other hand, is the general economy. Even though the issues related to the availability of workforce have decreased slightly from last year’s barometer, they are still mentioned as the second biggest obstacle for development. The high inflation rate also impacts SMEs, and the cost level is a key obstacle for development.

Strict regulation reduces the use of external financing

The strict banking regulations and the decreased creditworthiness of companies are reflected in the use of external financing by small and medium-sized enterprises. The share of SMEs borrowing money from the bank or other financial institutions has changed minimally over the recent years.

Finnvera maintains its position as an important financer, and its role as an alternative of and a supplement for bank loans has increased slightly. Finnvera’s guarantee plays a central role in receiving financing: almost one third of those who sought financing from banks said that Finnvera’s guarantee was a precondition for the financing. In this barometer, it should be noted that growth companies in particular were interested in Finnvera as a financer.

Speed of the digital leap seems to even out

The COVID 19 pandemic period increased the pressures faced by SMEs for the digitalisation of business since face-to-face interaction decreased and an increasing part of the daily work is done digitally in companies. The speed at which digital services and tools are implemented now seems to have evened out.

A company website is still the most widely utilised digital tool in the business of companies. In addition, SMEs utilise social media, cloud services and online purchases, among other things. The utilisation of big data and the industrial Internet, on the other hand, is very infrequent in small and medium-sized enterprises. The use of artificial intelligence applications and robotics has decreased by one percentage point in a year, and it has not increased since 2019, even though AI applications and robotics are developing rapidly and becoming more and more accessible.

Diverse impacts of Russia’s war of aggression

Russia’s war of aggression against Ukraine has caused a significant increase in the uncertainty related to the economy and financing. The overall impacts are much more extensive than just the companies that have direct business risks related to Russia.

The impacts of Russia’s war of aggression on small and medium-sized enterprises are multifaceted. Almost half of the companies state that Russia’s attack on Ukraine has had a negative impact on the company’s business or production. At the same time, a slightly higher share of the companies find that the company has had no impact on them. It is, however, clear that there is still great uncertainty regarding the war and its effects, and uncertainty is poison to the economy. It slows down both investments and consumption in Finland. The biggest uncertainties are caused by prolonged inflation and the resulting fast and significant increase in interest rates, which directly impacts purchasing power, among other things.

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