Economic Outlook Technology Industries of 1 219 Global And Finnish Economic Outlook Uncertainty dims growth outlook p. 3 Technology Industries In Economic uncertainty has not had a major impact yet p. 5
Contents Global and Finnish Economic Outlook... 3 Technology Industries in... 5 Electronics and Electrotechnical Industry in... 6 Mechanical Engineering in... 7 Metals Industry in... 8 Consulting Engineering in... 9 Information Technology in... 1 GDP Growth Forecasts for 219 Have Been Weakened in Recent Months Industrial Output Growth in the EU Countries Stopped already in 218 GDP consensus forecasts for 219, % 3,2 3, 2,8 2,6 2,4 2,2 2, 1,8 1,6 1,4 1,2 1,,8,6,4,2 218, January March May Eastern Europe Germany June July Sweden Russia August September Euro zone Italy October November France December Index 28 = 1 11 15 1 95 9 85 8 75 7 65 28 29 21 211 212 213 214 215 216 217 218 219 EU countries Japan USA Source: Consensus Economics Source: Macrobond Latest information: December 218 2 Economic Outlook 1/219
Uncertainty dims growth outlook Global And Finnish Economic Outlook 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 219 have been revised down in particular in Europe and Asia. Based on a monthly survey of 75 global banks and forecasters, the consensus forecast is that the global economy will grow only 3 per cent in 219. The last time the growth rate was this low was 29. According to the December forecast compilation, the euro area GDP growth rate is expected to be 1.6 per cent in 219, as opposed to almost 2 per cent in early 218. In Italy, the projected rate is as low as.7 per cent. Germany, France and the UK are forecast to expand 1.5 per cent in 219. 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 218. China s economic slowdown is showing signs of rapid acceleration. 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 199. 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 219, 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 s goods and service export revenue. Most of this revenue is generated by technology, forest and chemical industries. The economic impact of exporting industries is not limited to the value of exports. KPMG has analysed the overall effects with 217 data and the results were published in November 218. Export industry creates a value added effect of EUR 9 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 consumption. 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. However, recent trends are alarming. Productivity has not grown since early 217. This is true for industry and Finnish economy as a whole. In general, productivity has barely exceeded the level recorded in early 28. In other EU countries, productivity has grown much faster than in. The weak productivity development is due to modest growth of business investments in. 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 in the 215-217 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 218 and will not reach the 217 levels in 219 either. In comparison New Orders in the Manufacturing Industry in the Euro Area Declined Towards the End of 218, Services Come after s Export Growth Ended in 218, with a 4% Growth Gap Compared to Euro Area Eurozone PMI New Business 65 6 55 5 45 4 35 3 25 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 Composite Source: Markit Latest information: December 218 Manufacturing Services Index 25=1 14 Export of goods and services by quarter, billion euros, at fixed prices 13 12 11 1 9 8 7 28 29 Eurozone Source: Macrobond, Eurostat Latest information: 218 Q3 21 211 212 213 214 215 216 217 218 Economic Outlook 1/219 3
to other countries, investment rate (fixed capital formation in relation to gross value added) is among the lowest in. The reality is especially harsh when we look at the development of intangible investments in Finnish industry. The level has nearly halved since 28. R&D expenditure has dropped most drastically in the electronics industry. In other industry sectors, investments in intangible assets have remained relatively unchanged since 25. It is astounding that the Finnish investment 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. 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. Applied research should receive EUR 3 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 219, 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, but may delay some tax payments depending on the method chosen by companies. Industrial Fixed (Tangible) Investment Growth in Has Lagged behind that of Competitors 17 16 15 14 13 12 11 1 9 8 7 6 Billion euros, at fixed 21 prices, index 25=1 25 26 27 28 29 21 211 212 213 214 215 216 217218e219e Hungary Austria Sweden Poland Germany Belgium Netherlands Czech Republic Investment Rate in Industrial Fixed Investments Is at a Low Level in 34 32 3 28 26 24 22 2 18 16 14 12 1 8 6 Tangible investments / value added, % 25 26 27 28 29 21 211 212 213 214 215 Hungary Austria Sweden Poland Germany Belgium Netherlands Czech Republic 216 217 218e Source: Eurostat (National Accounts), Confederation of Finnish Industries investment survey, January 219 Source: Eurostat (National Accounts), Confederation of Finnish Industries investment survey, January 219 Industrial Intangible Investments * in Have almost Halved since 25 28 26 24 22 2 18 16 14 12 1 8 6 4 Billion euros, at fixed 21 prices, index 25=1 25 26 27 28 29 21 211 212 213 214 215 216 217 218e219e Hungary Poland Germany Czech Republic, excl. electronics industry Netherlands Sweden *) Intangible investments include research and development and software investments etc. Source: Eurostat (National Accounts), Confederation of Finnish Industries investment survey, January 219 Austria Belgium Investment Rate of Industrial Intangible Investments* Has Dropped Significantly in Intangible investments / value added, % 22 2 18 16 14 12 1 8 6 4 2 25 26 27 28 29 21 211 212 213 214 215 216 217 218e Hungary Poland Germany Czech Republic, excl. electronics industry Netherlands Sweden *) Intangible investments include research and development and software investments. Source: Eurostat (National Accounts), Confederation of Finnish Industries investment survey, January 219 Austria Belgium 4 Economic Outlook 1/219
Technology Industries In Economic uncertainty has not had a major impact yet The turnover of technology industry companies in grew by 6 per cent in 218 from 217. 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 market prices of raw materials and components. In 218, the turnover amounted to EUR 77 billion. In 28, prior to the financial crisis, the turnover of technology industry companies in 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 217. The drop is due to the ship orders in the reference period. Favourable development of order books continued towards the end of 218. Some 6 per cent of the strengthening of the order books since early 214 is attributable to ship orders. The last ship in the shipyards order books is expected to be delivered in 224. The number of tender requests received by technology industry companies ceased to grow during the autumn, but increased slightly 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 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 217. At the end of December, the value of order books was 3 per cent higher than at the end of September, and 1 per cent higher than in December 217. Judging from order trends in recent months, the turnover of technology industry companies in early 219 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 grew by almost 4 per cent in 218 from the 217 average. The industry employed some 311, people, up 11, from 217. Personnel numbers did not increase notably in the October-December period. Technology industry companies recruitment activities also decreased towards the end of the year. They recruited a total of 5, new employees in 218. In 217, total recruitments came to 42,5. Sixty-seven per cent of these employees were hired by SMEs. Some companies were increasing their personnel, while others were hiring new employees due to retirements and employee turnover. Turnover of Technology Industry in Increased by 6% in 218, to EUR 77 Billion Billion euros, at current prices 36 32 28 24 2 16 12 8 4 28 29 21 211 212 213 214 215 216 217 218 Electronics and electrotechnical industry Metals industry Information technology Mechanical engineering Consulting engineering Growth of turnover 218, %: Mechanical engineering +6 % Electronics and electrotechnical +6 % Metals industry +7 % Consulting engineering +5 % Information technology +6 % Source: Macrobond, Statistics / National Accounts, Federation of Finnish Technology Industries Value of New Orders in the Technology Industry* in 13 12 11 1 9 8 7 6 5 4 3 2 1 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Combined Change: IV,218 / IV,217 IV,218 / III,218 *) Excl. metals industry, Export: -13 % +8 % game industry and Domestic: -15 % +11 % data center companies Combined: -13 % +9 % respondent companies, latest observation October-December 218 Value of Order Books in the Technology Industry* in Technology Industry Personnel in and Abroad 26 24 22 2 18 16 14 12 1 8 6 4 2 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Change: 31.12.218 / 31.12.217 31.12.218 / 3.9.218 Export: +11 % +4 % Domestic: +7 % +1 % Combined: +1 % +3 % respondent companies, latest observation 31th December 218. Combined *) Excl. metals industry, game industry and data center companies 35 33 31 29 27 25 23 21 19 17 15 25 26 27 28 29 21 211 212 213 214 215 216 217 218 Personnel in Personnel in foreign subsidiaries Source: Statistics, Federation of Finnish Technology Industries labour force survey Economic Outlook 1/219 5
Electronics and Electrotechnical Industry in Steady order growth The turnover of companies in the electronics and electrotechnical industry (telecommunications equipment, electrical equipment and medical technology) in grew by 6 per cent in 218 from 217. In 218, the turnover amounted to EUR 15.3 billion. In 28, prior to the financial crisis, the turnover of electronics and electrotechnical industry companies in totalled EUR 3.4 billion. Both new orders and order books grew in the October-December period from the corresponding period in 217. 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 1 per cent higher than in the preceding quarter, and 9 per cent higher than in the corresponding period in 217. At the end of December, the value of order books was 5 per cent higher than at the end of September, and 5 per cent higher than in December 217. Judging from order trends in recent months, the turnover of electronics and electrotechnical industry companies is expected to be slightly higher in early 219 than in the corresponding period in 218. The number of personnel employed by electronics and electrotechnical companies in was up 2 per cent in 218 from the 217 average. The industry employed some 38,6 people, up 8 from 217. Value of New Orders in the Electronics and Electrotechnical Industry in 7 5 7 6 5 6 5 5 5 4 5 4 3 5 3 2 5 2 1 5 1 5 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Combined Change: IV,218 / IV,217 IV,218 / III,218 Export: +16 % +12 % Domestic: -13 % % Combined: +9 % +1 % respondent companies, latest observation October-December 218 Value of Order Books in the Electronics and Electrotechnical Industry in 8 5 8 7 5 7 6 5 6 5 5 Combined 5 4 5 4 3 5 3 2 5 2 1 5 1 5 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Change: 31.12.218 / 31.12.217 31.12.218 / 3.9.218 Export: +9 % +6 % Domestic: -12 % % Combined: +5 % +5 % respondent companies, latest observation 31th December 218. 6 Economic Outlook 1/219
Mechanical Engineering in Order books continue to strengthen The turnover of mechanical engineering companies (machinery, metal products and vehicles) in increased by 6 per cent in 218 from 217. In 218, the turnover amounted to EUR 31.7 billion. In 28, prior to the financial crisis, the mechanical engineering industry s turnover in 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 corresponding period in 217. 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 218. Some 75 per cent of the strengthening of the order books since early 214 is attributable to ship orders. The last ship in the shipyards order books is expected to be delivered in 224. 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 217. At the end of December, the value of order books was 3 per cent higher than at the end of September, and 12 per cent higher than in December 217. Judging from order trends in recent months, the turnover of mechanical engineering companies in early 219 is expected to be slightly higher than the corresponding period last year. The number of personnel in mechanical engineering companies in grew by 4 per cent in 218 from the 217 average. The industry employed some 133, people, up 5, from 217. Value of New Orders in the Mechanical Engineering in Value of Order Books in the Mechanical Engineering in 7 6 5 6 5 5 5 4 5 4 3 5 3 2 5 2 1 5 1 5 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Combined Change: IV,218 / IV,217 IV,218 / III,218 Export: -27 % +5 % Domestic: -32 % +14 % Combined: -28 % +6 % respondent companies, latest observation October-December 218 2 18 16 Combined 14 12 1 8 6 4 2 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Change: 31.12.218 / 31.12.217 31.12.218 / 3.9.218 Export: +12 % +3 % Domestic: +12 % +2 % Combined: +12 % +3 % respondent companies, latest observation 31th December 218. Economic Outlook 1/219 7
Copyright Ovako Metals Industry in Turnover growth continues The turnover of metals industry companies (steel products, non-ferrous metals, castings and metallic minerals) in grew 7 per cent in 218 from 217. Most of the turnover growth is attributable to higher sales prices. These are due to the rising world market prices since 216. In 218, the turnover amounted to EUR 1.8 billion. In 27, prior to the financial crisis, the metals industry turnover in totalled EUR 11.1 billion. The total production of steel products, non-ferrous metals, castings and metallic minerals in in the January-November period increased by 2 per cent year-on-year. The number of personnel employed by metals industry companies in grew by less than 2 per cent in 218 from the 217 average. The industry employed some 16,4 people, up 25 from 217. In comparison to the corresponding period in 217, 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 Russia were the largest producers in November. China accounted for 52 per cent of global steel production. Turnover of the Metals Industry in Production Volume of the Metals Industry in 13 12 11 1 9 8 7 6 5 4 Index 28 = 1 Change: 1-1,218 / 1-1,217, % 8 % 28 29 21 211 212 213 214 215 216 217 218 Index 28 = 1 Change: 1-11,218 / 1-11,217, % 15 14 13 2 % 12 11 1 9 8 7 6 28 29 21 211 212 213 214 215 216 217 218 Seasonal adjusted turnover index Source: Macrobond, Statistics Latest information: October 218 Seasonal adjusted volume index Source: Macrobond, Statistics Latest information: November 218 8 Economic Outlook 1/219
Consulting Engineering in Order books remain at a high level The turnover of consulting engineering companies (industrial, social and construction expert services) in grew by 5 per cent in 218 from 217. In 218, the turnover amounted to EUR 6.3 billion. In 28, prior to the financial crisis, the consulting engineering turnover in 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 remained at a notably higher level than in December 217. 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 quarter and 37 per cent higher than in the corresponding period in 217. 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 217. Judging from order trends in recent months, the turnover of consulting engineering companies in early 219 is expected to be higher than in the corresponding period last year. The number of personnel employed by consulting engineering companies in grew by almost 7 per cent in 218 from the 217 average. The industry employed some 54, people, up 3,4 from 217. Value of New Orders in the Consulting Engineering in Value of Order Books in the Consulting Engineering in 3 25 2 15 1 5 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Combined Change: IV,218 / IV,217 IV,218 / III,218 Export: +9 % +7 % Domestic: +31 % +32 % Combined: +37 % +28 % respondent companies, latest observation October-December 218 8 75 Combined 7 65 6 55 5 45 4 35 3 25 2 15 1 5 28 29 21 211 212 213 214 215 216 217 218 Domestic Export Change: 31.12.218 / 31.12.217 31.12.218 / 3.9.218 Export: -15 % -13 % Domestic: +3 % -3 % Combined: +21 % -5 % respondent companies, latest observation 31th December 218. Economic Outlook 1/219 9
Information Technology in Orders remain at a good level The turnover of information technology companies (IT services and software) in grew by 6 per cent in 218 from 217. In 218, the turnover amounted to EUR 13 billion. In 28, prior to the financial crisis, the information technology turnover in 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 218 and December 217. 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 October and December was 25 per cent higher than in the preceding quarter and 2 per cent higher than in the corresponding period in 217. Game industry and data centre companies are not included in the survey. At the end of December, the value of order books was 3 per cent higher than at the end of September, and 6 per cent higher than in December 217. Judging from order trends in recent months, the turnover of information technology companies is expected to be higher in early 219 than in the corresponding period last year. The number of personnel employed by information technology companies in grew by 3 per cent in 218 from the 217 average. The industry employed almost 69, people, up 2, from 217. Value of New Orders in the Information Technology* in Value of Order Books in the Information Technology* in 8 7 6 5 4 3 2 1 28 29 21 211 212 213 214 215 216 217 218 Change: IV,218 / IV,217 IV,218 / III,218 Combined: +2 % +25 % *) Excl. game industry and data center companies 2 1 8 1 6 1 4 1 2 1 8 6 4 2 28 29 21 211 212 213 214 215 216 217 218 Change: 31.12.218 / 31.12.217 31.12.218 / 3.9.218 Combined: +6 % +3 % *) Excl. game industry and data center companies respondent companies, latest observation October-December 218 respondent companies, latest observation 31th December 218. 1 Economic Outlook 1/219
ECONOMIC OUTLOOK 1 219 Information based on the situation on 24 January 219 Further information: Jukka Palokangas, Chief Economist, phone +358 9 1923 358, +358 4 75 5469 Petteri Rautaporras, Senior Economist, phone +358 9 1923 357, +358 5 34 222 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 Eteläranta 1, P.O.Box 1, FI-131 Helsinki tel. +358 9 19231 www.techind.fi Economic Outlook 1/219 11
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