Economic optimism plummets among consumers and industry

Confidence indicators of Statistics Finland and EK fall to record depths

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A deep sense pessimism about developments in the Finnish economy in the near future affects both Finnish corporations and households.
     Confidence among consumers and companies was lower in December than at any time since Statistics Finland and the Confederation of Finnish Industry (EK) and their predecessors began to use modern methods for measuring economic confidence.
      Of these two studies, the EK’s confidence indicator is based purely on “cold facts and their interpretation in companies”, as the EK’s chief economist Penna Urrila describes it.
     However, many other factors also affect consumer confidence, such as the economic news reported in the media.
     Nevertheless, both companies and consumers are largely in agreement. This also applies to developments in unemployment, the core issue in the looming recession.
     In this respect, consumers have never been more pessimistic - even in previous recessions - than they were in December.
     
In the EK survey, only the construction industry was directly asked for assessments of how the number of personnel would develop. Those expectations continue to fall.
     However, answers to two other questions indicated that the whole industrial sector anticipates a sharp weakening of employment. These questions concerned expectations of production and the amount of ready goods in the manufacturers' warehouses.
     The lack of new orders has led to a sharp decline in production expectations, whereas stockpiles of finished goods are filling up.
     
In such situations, companies cannot keep full staff for long, notes Penna Urrila.
     If the number of orders remains this low for a long time, the much talked-about strong bottom lines of Finnish companies will be of little help. “Hopefully they will guarantee that companies will not go bankrupt, but not a single company can keep personnel on the payroll for years on end if there is no work”, Urrila says.
     The only positive trend in the dark employment situation stems from the ageing of the population; larger numbers of people going on retirement reduce pressure for cutting staff.
     
The confidence indicator put out recently by Statistics Finland, which measures the views of ordinary people, also links in well with recent events.
     The Statistics Finland survey is divided into two parts. Respondents are asked for their expectations about their own economic prospects, and those of the Finnish national economy.
     Faith in people’s personal finances has remained fairly positive, with those expecting positive trends to continue slightly outnumbering those who fear a decline.
     Many see their personal financial situations as fairly solid, and possibilities to put funds into savings in the new year are seen as fairly high.
     However, the threat of personal unemployment is seen as more real than had ever been measured before. Perhaps this is one reason why people do not consider it to be a very good time to buy durable goods, or to borrow money.
     
While expectations for personal finances are fairly positive among the public at large, consumers are more pessimistic about the Finnish economy as a whole. Only 16 per cent expect improvements this year, while 57 per cent expect the overall economic situation to get worse. Six respondents out of 100 expect the employment situation to improve, while 83 per cent expect to see more joblessness.
     The grim expectations are not unique to Finns. In only one EU country - Poland - was the confidence indicator in December higher than it was in the previous month.
     The crisis of confidence has grown especially in the Nordic region, where expectations are usually positive.


See also:
  Poll: Fighting unemployment seen as increasingly important goal

Links:
  EK website 29.12.2008: Business situation worsened in December
  Statistics Finland website 29.12.2008: Consumers have gloomy expectations on the country´s economy and unemployment

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