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Situation report: lay-offs buffer unemployment growth, financial support for businesses prevents bankruptcies

Ministry of Economic Affairs and Employment
Publication date 28.5.2020 15.32 | Published in English on 29.5.2020 at 15.55
Press release

The Ministry of Economic Affairs and Employment has issued its third situation report collating follow-up data on how the coronavirus epidemic affects companies and the labour market as well as the service capacity and operating environment in the Ministry’s administrative branch. This third report focuses on employment and financial support for businesses.

Unemployment has risen, but lay-offs act as buffers

Restrictive measures during the coronavirus crisis have contributed to a rise in unemployment. The number of unemployed jobseekers increased by 124,000 from April.

Lay-offs act as buffers to rising unemployment. In April, lay-offs accounted for a greater part of the increase in the number of unemployed jobseekers. As the lay-offs have hit hardest sales personnel and restaurant workers, it is possible that the lifting of restrictive measures will allow a faster economic recovery than in earlier financial crises. The key question is whether the lay-offs are cancelled or whether they lead to longer-term unemployment.

The number of unemployed jobseekers and particularly the number of full-time lay-offs rose fastest in early April. In early May, the growth stopped, and by mid-May, the number of lay-offs seems to have taken a slight downward turn.

In anticipation of the rise in lay-offs, the number of codetermination notifications and of employees at risk of being laid off reached record numbers in mid-March. In April, the number of new notifications per day decreased rapidly, and the trend stabilised in May. A positive sign is that so far only a few codetermination talks have resulted in redundancies, according to employers’ reports to the Employment and Economic Development Offices (TE Offices).

During the coronavirus epidemic, as much as 40% of all lay-offs have been in the Uusimaa region, compared to less than 20% in February this year.

Youth unemployment has doubled in the last year. The multiprofessional Ohjaamo services report a change in the questions and concerns expressed by young people during the coronavirus situation. Young people are especially concerned about summer jobs, lay-offs, income, loneliness, life management problems and uncertainties related to studies.

Some self-employed persons have registered as unemployed jobseekers under temporary legislation, which entered into force in April, and TE Offices have so far issued 42,000 labour market support statements to Kela.

More information on the development of the labour market situation will be available when the Ministry publishes a short-term labour market forecast in June.

Great demand for financial support among businesses

Business Finland and Centres for Economic Development, Transport and the Environment (ELY Centres) grant business development support to reduce the harm caused by the coronavirus epidemic.

There has been a great demand for the support. Commercial enterprises account for 18%, accommodation and food and beverage services for 17% and transport and logistics (incl. taxies) for 14% of all enterprises in receipt of business development aid from ELY Centres. The regional distribution of granted aid reflects the number of enterprises in each region. The regions of Uusimaa, Pirkanmaa, Varsinais-Suomi and North Ostrobothnia account for most of the aid granted.

The top three sectors receiving business development funding from Business Finland are commerce, software and gaming, and tourism and restaurants, based on the situation on 25 May. By that date, the commerce sector had received EUR 64.1 million, the software and gaming sector EUR 49.5 million and the tourism and restaurant sector EUR 43.5 million.

The top five sectors receiving funding from Business Finland include also the creative sector (EUR 40.7 million) and business consultation services (EUR 28.8 million).

Quick launch of support for sole entrepreneurs

All municipalities have applied for support for sole entrepreneurs and self-employed persons with employees from the Ministry of Economic Affairs and Employment, and the Ministry has taken the necessary decisions. So far, the municipalities have received some 26,000 applications and approved 18,000 applications, according to a survey by the Association of Local and Regional Authorities. At the moment, it seems that the appropriation of EUR 250 million, designed to support 125,000 sole entrepreneurs and self-employed persons with employees, is sufficient.

The municipalities intend to make the decisions quickly, and over 90% of all municipalities process the applications within one week of receipt.

Optimism despite the crisis

Direct financial support for businesses has so far been able to prevent the feared wave of bankruptcies. In this respect, the support has been well targeted and it has helped businesses to cope in the crisis. Other significant measures have been the flexibility offered by creditors, guarantees granted by Finnvera and other arrangements to support businesses.

The fears of a massive wave of bankruptcies are yet to materialise. However, the number of bankruptcies has grown compared to January–February 2019. According to Statistics Finland, the number of initiated bankruptcies in January–February 2020 was 8.4% higher than the year before. The number of initiated bankruptcies grew in the following sectors: industry and mining, accommodation and food and beverage services, and other services.

At the moment, it seems that the support instruments created by the Ministry of Economic Affairs and Employment have been well targeted: most of the funding granted by Business Finland and ELY Centres have gone to services, commerce, tourism, and food and beverage services. Industrial operators have been the main recipients of guarantees granted by Finnvera and investment by the Finnish Industry Investment. A survey by the Finnish Industry Investment shows that Business Finland and Finnvera have granted funding mostly to SMEs with a negative turnover.

In other respects, too, the instruments created by the Ministry of Economic Affairs and Employment have been relatively well targeted to sectors with a negative turnover. According to data published by Statistics Finland on 15 May, the service sector with the poorest development in March 2020 was accommodation and food and beverage services, where the working-day adjusted turnover fell by 35.4% on March 2019. The sector’s volume also fell by 35.5% during the same period. The working-day adjusted turnover of logistics, the service sector with the biggest turnover, decreased by 12.5% on March 2019. Both sectors are among the top three sectors receiving business development aid from ELY Centres, and they are well represented among the receivers of funding from Business Finland, too.

It should be noted that the data now reported is only preliminary, as funding applications are still being processed. In addition, the operating environment is changing constantly, and many developments can have desirable and undesirable effects in the business field.

The confidence indicators published on 26 May show a small improvement in confidence in business and industry. There are some differences among sectors: confidence in industry has not improved (but has not decreased either), while confidence and sales expectations in services and retail trade have recovered the most from the record low in April. However, all main sectors covered by the confidence indicator are showing negative results comparable to those during the previous financial crisis. Consumer confidence, too, recovered a little in May.

Ville Autero, Chief Specialist, Ministry of Economic Affairs and Employment, tel. 029 504 7137
Tiina Tikka, Director of Development, Ministry of Economic Affairs and Employment, tel. 029 504 7962

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