Economic Outlook - Teknologiateollisuus · 2019-06-18 · Economic Outlook 1/2019 | 3 Global growth...

1 | 2019

Global And Finnish Economic OutlookUncertainty dims growth outlookp. 3

Technology Industries In FinlandEconomic uncertainty has not had a major impact yet p. 5

Economic Outlook Technology Industries of Finland

2 | Economic Outlook 1/2019

Contents

Global and Finnish Economic Outlook ................................. 3Technology Industries in Finland ......................................... 5Electronics and Electrotechnical Industry in Finland .......... 6Mechanical Engineering in Finland ..................................... 7Metals Industry in Finland ................................................... 8Consulting Engineering in Finland ...................................... 9Information Technology in Finland .................................... 10

Industrial Output Growth in the EU Countries Stopped already in 2018

GDP Growth Forecasts for 2019 Have Been Weakened in Recent Months

JulyAugust

JuneOcto

ber

December

November

Septem

berMayMarc

h201

8,

January

00,20,40,60,81,01,21,41,61,82,02,22,42,62,83,03,2

GDP consensus forecasts for 2019, %

Source: Consensus Economics

GermanySwedenEastern Europe

ItalyRussiaEuro zone France

20192017 20182015 20162014201320122011201020092008

65

110105100

959085807570

Japan

Source: MacrobondLatest information: December 2018

EU countriesFinlandUSA

Index 2008 = 100


Economic Outlook 1/2019 | 3

Global growth expectations have continued to weaken over the past few months. The US-China trade war and tariffs, other economic sanctions, the approach of Brexit and the softer momentum of the Chinese economy have increased uncertainty further. The political challenges in Italy have also dampened the outlook for stable development in Europe.

Growth forecasts for 2019 have been revised down in particular in Europe and Asia. Based on a monthly survey of 750 global banks and forecasters, the consensus forecast is that the global economy will grow only 3 per cent in 2019. The last time the growth rate was this low was 2009.

According to the December forecast compilation, the euro area GDP growth rate is expected to be 1.6 per cent in 2019, as opposed to almost 2 per cent in early 2018. In Italy, the projected rate is as low as 0.7 per cent. Germany, France and the UK are forecast to expand 1.5 per cent in 2019.

The situation in Germany reflects the uncertainty in the euro area: weakened prospects are not limited to Germany’s auto sector, but affect other industries. For example, new orders in Germany’s machinery sector have fallen below the level reported in early 2018.

China’s economic slowdown is showing signs of rapid accelera-tion. According to the purchasing managers’ indices, growth of industrial production has stalled and foreign trade volumes have dropped. Imports from the US to China were down 35 per cent in December, while imports from Germany, South Korea and Taiwan fell 15 per cent. Auto sales in China dropped for the first time in a long time, signalling a historical change in consumer behaviour as this has not happened since 1990. China has imposed new measures to achieve a higher level of economic growth, but with little effect.

While the outlook in the US remains better than in the euro area, the US economy is going to weaken as indicated by manufacturing purchasing managers’ indices and sluggish house sales.

The global economic instability has not had a major impact on the Finnish economy, at least not yet. Industrial production, exports and private consumption have remained relatively constant, and construction activity has expanded further. Employment trends have remained positive. However, the economy will be challenged by export demand in 2019, and the competitiveness of Finnish exports will face an even tougher test.

Significant lift required in investments to boost productivity

Industry accounts for 85 per cent of Finland’s goods and service export revenue. Most of this revenue is generated by technology, for-est and chemical industries. The economic impact of exporting industries is not limited to the value of exports. KPMG has analysed the overall effects with 2017 data and the results were published in November 2018.

Export industry creates a value added effect of EUR 90 billion to the Finnish economy, or 46 per cent of GDP value added. In terms of jobs, the total effect is some 1.1 million, or 43 per cent of all jobs. Every job in export industry creates more than one job in services. Total tax income amounts to EUR 28 billion.

The input-output calculation takes into account companies’ continued operations and investments. It includes direct effects on industry companies, indirect effects on other industries as well as the effect of paid salaries and other revenue on private consump-tion. The calculation also includes the direct and indirect effects of tax revenue.

Export industry has long been the key driver of good productivity development in Finland. However, recent trends are alarming. Productivity has not grown since early 2017. This is true for industry and Finnish economy as a whole. In general, productivity has barely exceeded the level recorded in early 2008. In other EU countries, productivity has grown much faster than in Finland.

The weak productivity development is due to modest growth of business investments in Finland. Lack of investments applies to both tangible and intangible assets. Tangible assets include machinery, equipment and transport vehicles as well as production and business buildings. Intangible assets include, in particular, investments in research and development (R&D) as well software investments.

While investments in tangible assets grew in Finland in the 2015-2017 period from the levels reported during the recession, the growth rate was much slower than in competing countries. According to the investment survey published by the Confederation of Finnish Industries (EK) in January, investments declined again in 2018 and will not reach the 2017 levels in 2019 either. In comparison

Global And Finnish Economic Outlook

New Orders in the Manufacturing Industry in the Euro Area Declined Towards the End of 2018, Services Come after

Finland’s Export Growth Ended in 2018, with a 40% Growth Gap Compared to Euro Area

Uncertainty dims growth outlook


Index 2005=100

2017 20182012 2013 2014 2015 20162011201020092008

70

80

90

110

140

130

100

120

FinlandEurozone

Source: Macrobond, EurostatLatest information: 2018 Q3

Export of goods and services by quarter, billion euros,at fixed prices

3025

40

50

6065

Eurozone PMI – New Business

ManufacturingComposite

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

35

45

55

Services

Source: MarkitLatest information: December 2018


to other countries, investment rate (fixed capital formation in relation to gross value added) is among the lowest in Finland.

The reality is especially harsh when we look at the develop-ment of intangible investments in Finnish industry. The level has nearly halved since 2008. R&D expenditure has dropped most drastically in the electronics industry. In other industry sectors, investments in intangible assets have remained relatively unchanged since 2005. It is astounding that the Finnish invest-ment rate for intangible assets in other industry sectors is closest to that of countries in Eastern Europe.

The government that will be formed in the spring must boldly promote business investment in Finland. It needs to identify the most effective means to boost the weak investment rate while also taking a responsible stance on the sustainability gap in the public finances.

We need to go back to a model which secures stable and predictable development of research and innovation in Finland.

Investment Rate of Industrial Intangible Investments* Has Dropped Significantly in Finland

Industrial Intangible Investments * in Finland Have almost Halved since 2005

Investment Rate in Industrial Fixed Investments Is at a Low Level in Finland

Applied research should receive EUR 300 million permanent increase in funding during the next parliamentary term.

ETLA, the Research Institute of the Finnish Economy, will publish the results of its research on a free depreciation policy, investments and the national economy in the autumn of 2019, providing tangible research data to support decision-making. The research project will develop a new dynamic model for business investment incentives. It will include the main features of the Finnish corporate tax regime.

Free depreciation policy allows companies to 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. This method will not decrease tax revenue in Finland, but may delay some tax payments depending on the method chosen by companies.


406080

100120140160180200

240

280260

220

2016 2019e2017 2018e2014 201520132012201120102007 2008 200920062005

Billion euros, at fixed 2010 prices, index 2005=100

GermanyPolandHungary

Sweden BelgiumCzech RepublicNetherlands

Finland, excl. electronics industry

Austria

*) Intangible investments include research and development and software investments etc.Source: Eurostat (National Accounts), Confederation of Finnish Industries’ investment survey, January 2019

Finland

68

10121416182022

30

26

34

28

24

32

2016 2018e20172014 201520132012201120102007 2008 200920062005

Tangible investments / value added, %



FinlandAustria

Source: Eurostat (National Accounts), Confederation of Finnish Industries’ investment survey, January 2019

Industrial Fixed (Tangible) Investment Growth in Finland Has Lagged behind that of Competitors

02468

10121416

2022

18

2016 2017 2018e2014 201520132012201120102007 2008 200920062005

Intangible investments / value added, %

*) Intangible investments include research and development and software investments.Source: Eurostat (National Accounts), Confederation of Finnish Industries’ investment survey, January 2019



Finland, excl. electronics industry

Austria

Finland

60708090

100110120130140

160150

170

2016 2018e2019e20172014 201520132012201120102007 2008 200920062005

Billion euros, at fixed 2010 prices, index 2005=100



FinlandAustria

Source: Eurostat (National Accounts), Confederation of Finnish Industries’ investment survey, January 2019


Technology Industries In Finland

The turnover of technology industry companies in Finland grew by 6 per cent in 2018 from 2017. Growth was steady in all the main sectors. About half of the increase was attributable to volume growth and half to increase in sale value due to rising world mar-ket prices of raw materials and components. In 2018, the turnover amounted to EUR 77 billion. In 2008, prior to the financial crisis, the turnover of technology industry companies in Finland totalled EUR 86 billion.

The value of technology industry companies’ new orders in the October-December period increased from the previous quarter, but was lower than in the corresponding period 2017. The drop is due to the ship orders in the reference period. Favourable development of order books continued towards the end of 2018. Some 60 per cent of the strengthening of the order books since early 2014 is attribut-able to ship orders. The last ship in the shipyards’ order books is expected to be delivered in 2024.

The number of tender requests received by technology industry companies ceased to grow during the autumn, but increased slight-ly in January from the level reported in late autumn. The market situation reflects the global economic uncertainty.

The companies that took part in the Federation of Finnish Tech-nology Industries’ survey of order books reported that the monetary

Economic uncertainty has not had a major impact yetvalue 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.

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

Judging from order trends in recent months, the turnover of technology industry companies in early 2019 is expected to be higher than in the corresponding period last year. Some of the turnover growth is attributable to rising producer prices.

The number of personnel employed by technology industry companies in Finland grew by almost 4 per cent in 2018 from the 2017 average. The industry employed some 311,000 people, up 11,000 from 2017. Personnel numbers did not increase notably in the October-December period.

Technology industry companies’ recruitment activities also de-creased towards the end of the year. They recruited a total of 50,000 new employees in 2018. In 2017, total recruitments came to 42,500. Sixty-seven per cent of these employees were hired by SMEs. Some companies were increasing their personnel, while others were hir-ing new employees due to retirements and employee turnover.

Technology Industry Personnel in Finland and AbroadValue of Order Books in the Technology Industry* in Finland

Value of New Orders in the Technology Industry* in FinlandTurnover of Technology Industry in Finland Increased by 6% in 2018, to EUR 77 Billion

2008 20182009 2010 2011 2012 2013 2014 2015 2016 20170

4

8

12

16

20

24

28

32

36Billion euros, at current prices

Source: Macrobond, Statistics Finland / National Accounts, Federation of Finnish Technology Industries

Growth of turnover 2018, %:Mechanical engineering +6 %Electronics and electrotechnical +6 %Metals industry +7 %Consulting engineering +5 %Information technology +6 %

Mechanicalengineering

Electronics andelectrotechnical industryMetals industry Consulting

engineeringInformation technology

Million euros, at current prices

Domestic Export Combined

01 0002 0003 0004 0005 0006 0007 0008 0009 000

10 00011 000

13 00012 000

2018201720152014201320122011201020092008 2016

Change: IV,2018 / IV,2017 IV,2018 / III,2018Export: -13 % +8 % Domestic: -15 % +11 %Combined: -13 % +9 %

Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest observation October-December 2018

*) Excl. metals industry, game industry and data center companies

Domestic Export


*) Excl. metals industry, game industry and data center companies

Source: The Federation of Finnish Technology Industries’ order book survey’s respondent companies, latest observation 31th December 2018.

02 0004 0006 0008 000

10 00012 00014 00016 00018 00020 00022 00024 00026 000

20182017201620152014201320122011201020092008

Change: 31.12.2018 / 31.12.2017 31.12.2018 / 30.9.2018Export: +11 % +4 % Domestic: +7 % +1 %Combined: +10 % +3 %

Combined

150 000170 000190 000210 000230 000250 000270 000290 000310 000330 000350 000

Source: Statistics Finland, Federation of Finnish Technology Industries’ labour force survey

201820172011 20122010 2014 20162015201320092008200720062005

Personnel in foreign subsidiariesPersonnel in Finland



The turnover of companies in the electronics and electro-technical industry (telecommunications equipment, electrical equipment and medical technology) in Finland grew by 6 per cent in 2018 from 2017. In 2018, the turnover amounted to EUR 15.3 billion. In 2008, prior to the financial crisis, the turnover of electronics and electrotechnical industry companies in Finland totalled EUR 30.4 billion.

Both new orders and order books grew in the October-De-cember period from the corresponding period in 2017. Orders have grown moderately during the past two years.

The electronics and electrotechnical 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 10 per cent higher than in

Value of Order Books in the Electronics and Electrotechnical Industry in Finland

Value of New Orders in the Electronics and Electrotechnical Industry in Finland

the preceding quarter, and 9 per cent higher than in the corre-sponding period in 2017.


Judging from order trends in recent months, the turnover of electronics and electrotechnical industry companies is expected to be slightly higher in early 2019 than in the corresponding period in 2018.

The number of personnel employed by electronics and elec-trotechnical companies in Finland was up 2 per cent in 2018 from the 2017 average. The industry employed some 38,600 people, up 800 from 2017.

Electronics and Electrotechnical Industry in FinlandSteady order growth



0500

1 0001 5002 0002 5003 0003 5004 000

5 000

6 000

7 0007 500

4 500

5 500

6 500

2017 201820152014201320122011201020092008 2016

Change: IV,2018 / IV,2017 IV,2018 / III,2018Export: +16 % +12 % Domestic: -13 % 0 %Combined: +9 % +10 %


Domestic Export

0500

1 0001 5002 0002 5003 0003 5004 0004 5005 0005 5006 0006 5007 0007 5008 0008 500

Combined


2017 20182015 20162014201320122011201020092008

Change: 31.12.2018 / 31.12.2017 31.12.2018 / 30.9.2018Export: +9 % +6 % Domestic: -12 % 0 %Combined: +5 % +5 %



The turnover of mechanical engineering companies (machinery, metal products and vehicles) in Finland increased by 6 per cent in 2018 from 2017. In 2018, the turnover amounted to EUR 31.7 billion. In 2008, prior to the financial crisis, the mechanical engineering industry’s turnover in Finland totalled EUR 33.3 billion.

The value of new orders in mechanical engineering remained at a good level in the October-December period. Order volume was higher than in the previous quarter, but lower than in the corre-sponding period in 2017. The drop is due to the ship orders in the reference period. Boosted by the upswing in new orders, order books also continued to strengthen during the rest of 2018. Some 75 per cent of the strengthening of the order books since early 2014 is attributable to ship orders. The last ship in the shipyards’ order books is expected to be delivered in 2024.

Value of Order Books in the Mechanical Engineering in FinlandValue of New Orders in the Mechanical Engineering in Finland

The mechanical engineering 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 6 per cent higher than in the preceding quarter, but 28 per cent lower than in the corresponding period in 2017.


Judging from order trends in recent months, the turnover of mechanical engineering companies in early 2019 is expected to be slightly higher than the corresponding period last year.

The number of personnel in mechanical engineering companies in Finland grew by 4 per cent in 2018 from the 2017 average. The industry employed some 133,000 people, up 5,000 from 2017.

Mechanical Engineering in FinlandOrder books continue to strengthen



0500

1 0001 5002 0002 5003 0003 5004 0004 5005 000

7 0006 500

5 5006 000

20182017201620152014201320122011201020092008

Change: IV,2018 / IV,2017 IV,2018 / III,2018Export: -27 % +5 % Domestic: -32 % +14 %Combined: -28 % +6 %



Domestic Export

02 0004 0006 0008 000

10 00012 00014 000

20 000

16 00018 000

2017 20182015 20162014201320122011201020092008

Combined

Change: 31.12.2018 / 31.12.2017 31.12.2018 / 30.9.2018Export: +12 % +3 % Domestic: +12 % +2 %Combined: +12 % +3 %



Metals Industry in FinlandTurnover growth continues

The turnover of metals industry companies (steel products, non-ferrous metals, castings and metallic minerals) in Finland grew 7 per cent in 2018 from 2017. Most of the turnover growth is attributable to higher sales prices. These are due to the rising world market prices since 2016. In 2018, the turnover amounted to EUR 10.8 billion. In 2007, prior to the financial crisis, the met-als industry turnover in Finland totalled EUR 11.1 billion.

The total production of steel products, non-ferrous metals, castings and metallic minerals in Finland in the January-No-vember period increased by 2 per cent year-on-year.

The number of personnel employed by metals industry com-panies in Finland grew by less than 2 per cent in 2018 from the

Production Volume of the Metals Industry in FinlandTurnover of the Metals Industry in Finland

2017 average. The industry employed some 16,400 people, up 250 from 2017.

In comparison to the corresponding period in 2017, global steel production increased by 5 per cent in January-November. Production increased by 6 per cent in Asia and by 4 per cent in North America, but decreased slightly in the EU.

China, Japan, India, the United States, South Korea and Rus-sia were the largest producers in November. China accounted for 52 per cent of global steel production.

Copy

right

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vako

Index 2008 = 100 Change: 1-10,2018 / 1-10,2017, %

405060708090

100110120130

8 %

20122011201020092008 201820172015 201620142013

Seasonal adjusted turnover indexSource: Macrobond, Statistics FinlandLatest information: October 2018

Index 2008 = 100

60708090

100110120130140150

2 %

Change: 1-11,2018 / 1-11,2017, %

20182017201620152014201320122011201020092008

Seasonal adjusted volume indexSource: Macrobond, Statistics FinlandLatest information: November 2018


Consulting Engineering in FinlandOrder books remain at a high level

The turnover of consulting engineering companies (industrial, social and construction expert services) in Finland grew by 5 per cent in 2018 from 2017. In 2018, the turnover amounted to EUR 6.3 billion. In 2008, prior to the financial crisis, the consulting engi-neering turnover in Finland totalled EUR 5.5 billion.

New orders remained at a high level in the October-December period. Order books were down slightly from September, but re-mained at a notably higher level than in December 2017.

The consulting engineering 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 28 per cent higher than in the preceding quar-ter and 37 per cent higher than in the corresponding period in 2017.

Value of Order Books in the Consulting Engineering in FinlandValue of New Orders in the Consulting Engineering in Finland

At the end of December, the value of order books was 5 per cent lower than at the end of September, but 21 per cent higher than in December 2017.

Judging from order trends in recent months, the turnover of consulting engineering companies in early 2019 is expected to be higher than in the corresponding period last year.

The number of personnel employed by consulting engineering companies in Finland grew by almost 7 per cent in 2018 from the 2017 average. The industry employed some 54,000 people, up 3,400 from 2017.


0

50

100

150

200

250

300

2017 2018201620152014201320122011201020092008


Change: IV,2018 / IV,2017 IV,2018 / III,2018Export: +90 % +7 % Domestic: +31 % +32 %Combined: +37 % +28 %



0

100

200

300

400

500

600

700

50

150

250

350

450

550

650

750

Domestic Export2017 201820152014201320122011201020092008 2016

800

Change: 31.12.2018 / 31.12.2017 31.12.2018 / 30.9.2018Export: -15 % -13 % Domestic: +30 % -3 %Combined: +21 % -5 %

Combined



The turnover of information technology companies (IT services and software) in Finland grew by 6 per cent in 2018 from 2017. In 2018, the turnover amounted to EUR 13 billion. In 2008, prior to the financial crisis, the information technology turnover in Finland totalled EUR 6.7 billion.

New orders remained at a good level in the October-December period. Typically for the sector, order volumes fluctuate strongly from one quarter to another. The value of order books was up from both September 2018 and December 2017.

The information technology companies that took part in the Federation of Finnish Technology Industries’ survey of order books reported that the monetary value of new orders between Octo-ber and December was 25 per cent higher than in the preceding

Value of Order Books in the Information Technology* in FinlandValue of New Orders in the Information Technology* in Finland

quarter and 20 per cent higher than in the corresponding period in 2017. Game industry and data centre companies are not included in the survey.


Judging from order trends in recent months, the turnover of information technology companies is expected to be higher in early 2019 than in the corresponding period last year.

The number of personnel employed by information technology companies in Finland grew by 3 per cent in 2018 from the 2017 average. The industry employed almost 69,000 people, up 2,000 from 2017.

Information Technology in FinlandOrders remain at a good level

Change: IV,2018 / IV,2017 IV,2018 / III,2018Combined: +20 % +25 %

0

100

200

300

400

500

600

700

800

*) Excl. game industry and data center companies

20182017201620152014201320122011201020092008




Change: 31.12.2018 / 31.12.2017 31.12.2018 / 30.9.2018Combined: +6 % +3 %

0200400600800

1 0001 200

2 000

1 4001 6001 800

*) Excl. game industry and data center companies

2018201720152014201320122011201020092008 2016



ECONOMIC OUTLOOK 1 | 2019Information based on the situation on 24 January 2019 Further information: Jukka Palokangas, Chief Economist, phone +358 9 1923 358, +358 40 750 5469Petteri Rautaporras, Senior Economist, phone +358 9 1923 357, +358 50 304 2220 Please visit the homepage of the Federation of Finnish Technology Industries for additional information on technology industry turnover, exports, investments, personnel and the development of producer prices: www.techind.fi.

Technology Industries of Finland | Eteläranta 10, P.O.Box 10, FI-00131 Helsinki | tel. +358 9 19231 | www.techind.fi

Economic Outlook - Teknologiateollisuus · 2019-06-18 · Economic Outlook 1/2019 | 3 Global growth...

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