Focus on Finland (IBR 2013)

Focus on: FinlandGrant Thornton International Business Report 2013

5.4 million inhabitants

200businessinterviews

US$250bngross domestic product

Focus on: Finland 2

Introduction

Focus on: Finland

Finland is a country in northern Europe of approximately 5.4m people. In 2012, its GDP was approximately US$250bn, making it the 42nd largest economy in the world and the seventh largest in the eurozone.

Drawing on data sources such as the Grant Thornton International Business Report (IBR), the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Finland, and more than 12,500 globally, over the past 12 months.Joakim RehnGrant Thornton FinlandManaging partnerT +358 (0)9 5123 3344E [email protected] W www.gtfinland.com

10%

10%

8%

7%

59% 12%

9%6%

47%

17%

-3

-2

-1

0

1

2

3

4

5

2013 2014 2015 20172016 2018

6%

9%

10%

10%

8%

7%

59% 12%

9%6%

47%

17%

-3

-2

-1

0

1

2

3

4

5

2013 2014 2015 20172016 2018

6%

9%

10%

10%

8%

7%

59% 12%

9%6%

47%

17%

-3

-2

-1

0

1

2

3

4

5

2013 2014 2015 20172016 2018

6%

9%

10%

10%

8%

7%

59% 12%

9%6%

47%

17%

-3

-2

-1

0

1

2

3

4

5

2013 2014 2015 20172016 2018

6%

9%

Economyexpanded by

0.4%in Q3-2013

Focus on: Finland 3

Finland was left relatively unscathed by the first wave of the eurozone sovereign debt crisis, growing strongly in both 2010 and 2011. However as the currency bloc’s troubles have continued, the economy has stagnated, contracting in 2012 as demand slowed in key regional export markets. Despite this, the economy remains dynamic; it ranked fifth in the Global Dynamism Index 2013, the highest in Europe, due to fertile science and technology investment (third globally) and a sound business operating environment (fifth globally). Germany and Sweden are the principal trade partners.

Focus on: Finland

• the economy expanded by a seasonally adjusted 0.4% in Q3 from Q2, up from 0.3% in the previous three-month period

• the economy contracted by 0.2% compared with the same period in 2012, although this was an improvement from the 1.1% decline observed in Q2

• services declined by 1.2% in Q3, highlighting the ongoing weakness in domestic demand

• however, consumer confidence may have turned a corner, rising to 6.4 in November, the highest value in five months, although still some way below the long-run average (12.2)

• a current account deficit of €1.5bn was recorded for the first nine months of the year, a marked improvement from a shortfall of €3bn in the same period of 2012.

Key indicators

EconomyExport destinations

SwedenGermanyRussiaUnited StatesNetherlandsOther

GermanySwedenChinaRussiaNetherlandsOther

Source: Observatory of Economic Complexity (2013)

Import originations

10

%

10

%

8%

7%

59

%1

2%

9%

6%

47

%

17

%

-3 -2 -1 0 1 2 3 4 5

20

13

201

42

01

520

17

20

16

201

8

6%

9%

forecast growth-1.0%

in 2013forecast growth1.1%

in 2014

Focus on: Finland 4

Focus on: Finland

The economy is expected to contract by 1.0% in 2013 as another difficult year for the currency union draws to a close. However, growth rates are expected to pick up across Europe in 2014 with expansion of 1.1% forecast for Finland, rising to 1.9% in 2015. This improved performance is expected to be supported by a recovery in trade. Exports are forecast to decline by 1.0% in 2013, but growth of 2.8% is forecast in 2014 accelerating to 4.5% in 2015. Any further deterioration in the eurozone is a serious downside risk to this forecast.

Public debt is well under control; net government debt stands at -50% (indicating government finances are in credit) which compares to 35% in the Netherlands and 56% in Germany. However this strong position is expected to be somewhat eroded over the medium-term with net debt falling to -36% by 2018. The budget balance is well within the EU target range of -3% at -2.2% in 2013 and is expected to fall further to just -0.5% by 2018.

The sale by Nokia of its handset devices and services division to Microsoft for €5.4bn in September is unlikely to have too much of a negative effect on the wider economy. Nokia’s importance has declined significantly over recent years: in 2000 it accounted for 4% of total GDP, compared with just 0.4% in 2011. Its share of total employment declined from 1.0% to 0.7% over the same period but under the takeover deal, 32,000 Nokia employees will transfer to Microsoft, of whom 4,700 of whom are in Finland. The new-look Nokia looks set to concentrate on its mapping and networking divisions.

Economic outlook

Key indicators: short to medium-term forecasts

Source: EIU (2013)

Export growth (%)

Real GDP growth (%)

10%

10%

8%

7%

59% 12%

9%6%

47%

17%

-3

-2

-1

0

1

2

3

4

5

2013 2014 2015 20172016 2018

6%

9%

Budget balance (% of GDP)

are planning28%to invest inplant andmachinery

10

%

10

%

8%

7%

59

%1

2%

9%

6%

47

%

17

%

-60

-50

-40

-30

-20

-10 0

10

20

30

40

Q4

-11

Q1

-12

Q2

-12

Q1

-13

Q4-1

2Q

3-1

3

6%

9%

Q3

-12

Q2

-13

10

%

10

%

8%

7%

59

%1

2%

9%

6%

47

%

17

%

-60

-50

-40

-30

-20

-10 0

10

20

30

40

Q4

-11

Q1

-12

Q2

-12

Q1

-13

Q4-1

2Q

3-1

3

6%

9%

Q3

-12

Q2

-13

Focus on: Finland 5

Business growth prospects

Focus on: Finland

Finnish business optimism declined sharply again in Q3, falling to net -56%, down from -20% in Q2. The 2013 average now stands at -36%, down from -17% in 2012. The decline in Finland actually came as both the eurozone (8%) and Nordic (34%) averages improved.

Business growth prospects also remain depressed compared with previous years. Just net 27% of business leaders have indicated an expectation of increasing revenues in 2013, down from 37% in 2012 and 50% in 2011. This is similar to the eurozone average (26%) but well below the Nordic result (44%).

Similarly, profit increase expectations across 2013 have averaged net 24% in Finland, down from 31% in 2012 and 38% in 2013. The eurozone average is actually slightly lower at 19% but the Nordic average is again much higher at 37%.

Expectations for increasing investment in plant and machinery have also suffered over recent quarters, falling from 36% in Q1 to 24% in Q2 and 16% in Q3. The 2013 average of 28% is down on the 36% 2012 result. However, Finnish businesses remain more bullish that peers across the eurozone (25%) and Nordic region (23%).

The labour market remains tricky. On average across 2013, net -2% have indicated an expectation to hire, suggesting more plan to lose staff than plan to hire. This is down from 6% in 2012 and is below both the eurozone (4%) and Nordic (15%) averages.

Net percentage of businesses expecting an increase (next 12 months)

Investment

Revenue

Profits

Employment

2419

37

2825

23

2726

44

-24

15

Net percentage of businesses optimistic for the economic outlook (next 12 months)

Source: Grant Thornton IBR 2013

10%

10%

8%

7%

59% 12%

9%6%

47%

17%

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Q4-11 Q1-12 Q2-12 Q1-13Q4-12 Q3-13

6%

9%

Q3-12 Q2-13

eurozone

Finland

Nordic


eurozone

Finland

Nordic

uncertaintyeconomic

weighingon growth

Percentage of businesses citing factor as a constraint on growth

Finlandeurozone

Economic uncertainty

Regulations & red tape Transport infrastructure

11

37

Lack of demand

Lack of skilled workers

1623

18 27

60 42

Shortage of finance

35 35

demanda lack of

challengeremains a

2 8

Focus on: Finland 6

Focus on: Finland

Constraints on expansionA pervading sense of economic uncertainty is the key challenge business leaders in Finland feel is stopping them from growing their operations. Three in five business leaders cite this as a constraint, highlighting the continuing difficulties caused by a lack of robust resolution to the eurozone crisis. This is similar to the southern European average (59%) but well above the wider Eurozone (42%) and Nordic (27%) averages.

A lack of demand is hampering the growth efforts of more than a third of Finnish businesses. At 35% this is level with the eurozone average. Again, the Nordic average – which includes Finland’s neighbours, none of whom use the single currency – is lower at 28%. However, the situation remains far more crtitical in troubled southern Europe where 51% of business leaders cite a lack of demand as a constraint.

Finland’s business leaders are relatively unconcerned by a shortage of finance (18%) compared with Eurozone peers (27%), although the Nordic average is again lower (13%). And at 16% the proportion citing a lack of skilled workers is below both the eurozone (23%) and Nordic (21%) averages. Similarly bureaucracy in the form of regulations and red tape is constraining just one in ten Finnish businesses compared with one in three across the eurozone and one in six across the Nordic region.


Percentage positive about euro adoption


Ireland Germany Finland Spain eurozone Estonia Belgium Greece Italy France Netherlands

88 86 85 8278 76 74 73

67 64 64

positive on85%Euro

38

25

36

17

3935

Focus on: Finland 7

Focus on: Finland

Finland in Europe Despite the travails of the single currency and the rise of Eurosceptic party, The Finns (PS), an overwhelming majority of Finnish businesses remain positive about their country’s adoption of the euro; 85% say that entry has been positive for their business, behind only Ireland (88%) and Germany (86%) and well above the eurozone average of 78%. And just 6% of Finnish business leaders would like to exit the euro.

Finland’s business leaders are keen to see further European integration: 98% want to European countries develop closer ties, compared to 91% across the eurozone and just 71% of non-euro EU countries. Four in five business Finnish business leaders would like to see closer economic integration, above the 66% single currency average, with a further 52% backing further industrial integration and 44% developing closer political ties.

They are less keen on any further expansion of the single currency however; just 25% want to see enlargement, compared with 38% across the eurozone. Indeed 36% want to see some countries drop out of the euro, more than double the regional average (17%). As a country with no debt burden and a small budget deficit, Finnish business leaders are resistant to call for debt mutualisation in the form of eurobonds: 50% are against the idea, double the eurozone average (25%); only peers in Germany (62%) and Estonia (56%) are less interested.

Finlandeurozone

What should happen to the number of countries in the single currency?


Increase Decrease Stay the same

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IBR 2013 methodologyThe Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally.

The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors in businesses with 50-499 employees in Finland. Q3 data is drawn from 3,300 interviews globally (50 in Finland; 300 in the Nordics) conducted in September 2013. 2013 data is drawn from over 12,500 interviews (200 in Finland; 1450 in the Nordics) conducted between November 2012 and September 2013.

To find out more about IBR, please visit: www.internationalbusinessreport.com.

Dominic KingGrant Thornton International LtdGlobal research managerT +44 (0)207 391 9537E [email protected]

Paula Frölander-Ulf Grant Thornton FinlandMarketing managerT +358 (0)9 5123 3341E [email protected]