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Business Environment

Business Environment

Market conditions

After the strong early year, the growth outlook for the Finnish economy has weakened due to the energy crisis and accelerating inflation. It is forecast that the Finnish economy will grow by 2.2 per cent this year and contract by 0.3 per cent the next. Higher energy prices will slow down growth and fuel the momentum of inflation in the next few years, but the rise in consumer prices is expected to ease off next year. Alongside inflation, rising interest rates cut into consumers’ purchasing power and consumer confidence is at a historical low. The employment rate has been good, but the challenges facing the economy foreshadow the ending of the favourable trend in employment.  (Source: Bank of Finland)

Urbanisation in Finland has maintained demand for both housing and business construction, especially in growth centres. Russia’s war against Ukraine has weakened the outlook for construction, but the strong order backlog for the previous year will maintain growth in construction this year. However, the number of building permits has begun to decline and the Confederation of Finnish Construction Industries RT predicts that construction will fall by 2 per cent in 2023. The rate of growth in material costs has slowed down and availability problems have decreased. (Source: Confederation of Finnish Construction Industries RT and RAKSU group).

After an extremely busy year in the housing market, the intentions of households to buy a residential unit have declined this year due to reasons such as higher interest rates and changes in purchasing power. The pace of housing construction is slowing down, and it is forecast that 41,000 units will be started up this year and about 36,000 units in 2023. Business construction will continue to grow this year, driven by industrial and energy investments. However, uncertainty and high costs hamper tender operations, and business construction will begin to decline next year. (Source: Confederation of Finnish Construction Industries RT)

2022 got off to a strong start in the Finnish real estate market, with a wide variety of trading in different sectors. Russia’s war against Ukraine, accelerating inflation and rising interest rates cloud the outlook for development and contribute to the growth in yield requirements in all segments. Trading volumes are expected to slow down towards the end of 2022 and possibly also in early 2023. Investors will most likely remain primarily interested in targets with strong cash flows, such as housing and public services premises. (Newsec)

Russia’s war against Ukraine has driven the country’s economy into a weak state. The Bank of Finland forecasts that the Russian economy will contract by about 4 per cent this year and by 4 per cent in 2023. The uncertainty caused by the war reduces consumption and investments. Extensive economic and trade sanctions by other countries have isolated Russia from international financing, limited imports of technology and slashed foreign demand for Russian products, weakening growth prospects for the years ahead. (Source: Bank of Finland, Bofit)

Interim report 1-9/2022, 27 October 2022