Uncertainty weighs on SME business outlook, number of employees to remain unchanged

The expectations of small and medium-sized enterprises (SMEs) fell towards the end of the year. The near-term outlook of companies has been negatively affected by Russia’s war of aggression in Ukraine and the rising prices fuelled by the war. The European Central Bank continues to raise interest rates and the energy market is in turmoil.

The balance figures, which describe companies’ business expectations and investment plans, continued to decline in the spring 2023 SME Barometer. However, half of SMEs estimated that the economic situation would remain the same.

“Uncertainty in the operating environment of companies is reflected in the results of the SME Barometer. I find it positive that the number of employees in industry and services is expected to grow in the coming year and that the total number of people employed by SMEs will remain more or less unchanged,” said Minister of Economic Affairs Mika Lintilä at the publishing event of the spring 2023 SME Barometer on 16 February 2023. 

The SME Barometer is published twice a year by the Federation of Finnish Enterprises, Finnvera and the Ministry of Economic Affairs and Employment. This time, approximately 4,650 companies responded to the survey, which was conducted from mid-December 2022 to mid-January 2023.

SMEs’ willingness to grow and invest has fallen

SMEs expect to cut their investments significantly in the near future. In all main sectors, companies planning to reduce their investments outnumber those planning to increase them.

“The prolonged decline in investment willingness seems to be linked to the willingness to grow. Growth-seeking companies invest more. The number of such companies must increase, because even in the current uncertain situation their investment expectations are clearly positive,” said Petri Malinen, Economist at the Federation of Finnish Enterprises.

Costs expected to rise further

“There are strong expectations of rising production costs. The prices of raw materials and other intermediate products are expected to rise rapidly. SMEs’ price-setting margins on their own products and services have tightened since autumn, and they do not compensate for the rising prices of intermediate products,” Malinen added. 

Compared with the SME Barometer in autumn, a smaller number of SMEs expect their turnover to increase over the next year, and nearly as many expect it to shrink. At present, 30 per cent of companies expect to see an increase in turnover. 

SMEs participate in energy saving

The rise in electricity prices has had a negative impact on business operations or production in about one in three SMEs. Only 40 per cent of these companies have been able to transfer at least a part of the increase in electricity prices to the end product prices. The price of electricity has reduced profitability for three out of four companies. 

“In the latter part of the year, Finnish people were able to save as much electricity as they had previously imported from Russia. Energy savings have been significant, and 40% of SMEs have taken active measures to save electricity in their daily operations,” said Minister Lintilä and thanked the SMEs for their contribution to ensuring that electricity has been sufficient in Finland this winter.

Two out of five SMEs have introduced active measures to save electricity. Almost one in four of these companies has adopted a new energy source. Despite extensive savings measures, one in ten companies has been forced to limit or time their production in order to save energy.

Uncertainty has reduced the use of external financing

Uncertain future hampers access to funding, and the operating environment has rapidly become more difficult to predict. According to the SME Barometer, financiers have tightened their lending policies. Of all companies, those looking for strong growth face the most challenges in securing the external funding needed. About 57% of such enterprises reported that the bank required Finnvera’s guarantee on their loan. The use of external financing has decreased slightly, because most of the companies’ financing needs are related to their growth, which has weakened due to uncertainty and rising costs. 

“Even amid uncertainty and cost awareness, we must have the courage to build the future. It is even more important than before to secure funding for investments and growth projects that look to the future. Finnvera is prepared to increase loans and guarantees to enterprises that are growth-oriented or planning to invest. We will introduce tailored market solutions to accelerate the growth and internationalisation of companies. As a result of a recent legislative amendment, we can also fund foreign customers of Finnish exporters through direct buyer credits,” says Juuso Heinilä, Executive Vice President at Finnvera.

Inquiries:
Petri Malinen, Economist, Federation of Finnish Enterprises, tel. +358 50 434 5952, email firstname.lastname@yrittajat.fi 
Sofia Tuovinen, Special Adviser to the Minister of Economic Affairs, Ministry of Economic Affairs and Employment, tel. +358 295 160 993, email firstname.lastname@gov.fi
Kai Husso, Chief Specialist, Ministry of Economic Affairs and Employment, tel. +358 50 359 0663, e-mail firstname.lastname@gov.fi 
Juuso Heinilä, Executive Vice President, Finnvera plc, tel. +358 295 460 2576, email firstname.lastname@finnvera.fi