Potentially significant turn in business confidence in December

SY economist says that the shift in businesses’ confidence is a sign that the worst may be in the past.

In December last year, businesses’ confidence in the economy turned upwards in all main sectors, and the positive mood continued into 2024. In January, businesses confidence increased in all main sectors apart from construction, which continues to grapple with weak demand. This is the finding of fresh data from Statistics Finland.

“However, confidence is significantly weaker than the long-term average. The start of this year is going to be difficult for the Finnish economy, but the turn for the better that began in December gives hope that we’ve passed rock bottom,” Roope Ohlsbom, an economist at Suomen Yrittäjät, the Finnish SME association, says.

The construction sector’s confidence indicator dropped to -39.4 in January. The figure had been -36.4 in December and -42.8 in November. Ohlsbom says that companies anticipate cuts in interest rates.

“The construction sector continues to suffer from high interest rates and construction costs, as well as home-buyers’ wariness. Internal migration and population growth are putting increasing demand on housing in the big cities, so new builds will probably start once interest rates go down,” Ohlsbom says.

The market situation continues to be challenging for sectors such as hospitality, logistics and warehousing. Big companies’ payment difficulties create risks for the operations of small subcontractor business owners.

“Uncertainty is particularly taxing for SMEs, as smaller businesses often have fewer tools at their disposal to protect themselves from market volatility and interest-rate changes.”

Consumers still gloomy

The consumer confidence indicator in January was -9.1. The figure was -13.3 in December, -12.4 November and -12.6 in October. Last January, the consumer confidence index was -12.7.

“The weaker jobs market, persistently high mortgage rates, and worrying international developments continue to depress consumers’ outlook, but now we are finally seeing a turn for the better,” Ohlsbom says.

Consumers’ outlook on their finances a year from now, in particular, has improved. Last December, Finns considered their own finances to be weaker than during the energy crisis in the autumn of 2022, but the recent positive shift is in Ohlsbom’s opinion clear.

“By contrast, consumers’ expectations of the Finnish economy’s performance in a year’s time remained extremely weak. And in spite of an increase, their evaluations of their current personal finances remained negative. On top of that, consumers’ expectations of the jobs market performance in general remained bleak, and they continued to feel personally at risk of unemployment.”

Ohlsbom says that lower inflation and tax cuts will boost households’ purchasing power, but that recent increases in unemployment coupled with social welfare cuts may dampen the recovery of consumer demand. Consumption spending intentions continued to be very low in January.

“Demand and consequently firms’ profits will not be strengthened before consumers’ confidence in their personal finances and their employment prospects recover sufficiently,” Ohlsbom says.

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