Business Environment

Business Environment

In 2019, the global economic growth has slowed down due to the uncertainty caused by the trade conflicts. The global economic growth will recover already next year, driven by the euro zone and many emerging economies. (Ministry of Finance: 7 October 2019)

The rapid slowdown in economic growth in Germany casts a shadow on the economic outlook of the euro zone. However, the outlook is expected to brighten next year. In the years ahead, Finnish economic growth will be more restrained than in earlier years. The economy will grow by about 1.5 per cent in 2019. In 2020, economic growth will slacken to 1.0 per cent. Growth in exports will remain moderate. (Ministry of Finance: 7 October 2019)

Construction will decrease both this year and the next, while the rest of the economy will continue to grow. During the current year, building construction start-ups will decline from their level in the two previous years, about 40 million cubic metres, to under 37 million cubic metres. Next year, construction volume will most likely amount to less than 35 million cubic metres. (Business cycle review by the Confederation of Finnish Construction Industries RT, 2/2019.)

Urbanisation and population shift are still the general drivers of construction and will maintain the need for both housing and business construction in growth centres. According to VTT’s forecast, urbanisation will continue, as Finland’s urbanisation ratio is clearly lagging behind other industrialised nations, such as Sweden. For instance, the Helsinki region’s 14 municipalities have made a joint MAL Plan, in which the target state is for the Helsinki region to have two million residents and more than a million jobs by 2050. This would mean about 500,000 more residents and 300,000 more jobs than in 2018. (Sources: Helsinki Region Trends 1/2019 & VTT’s Demand for Housing Production, 2015–2040, 01/2016).

Construction of housing has been at a record high in recent years, especially in the Greater Helsinki Area, Tampere and Turku. Housing construction is expected to slow down this year, with start-ups in Finland declining from last year’s level of about 45,600 residential units to around 38,000. The slowdown in housing construction is offset by brisk construction of housing in the Greater Helsinki Area, low interest rates and strong investor demand (Business cycle review by the Confederation of Finnish Construction Industries RT, 2/2019.)

In commercial construction, start-ups of projects other than public-sector service buildings and industrial buildings will fall this year. Construction of hospitals and schools remains brisk. Renovation construction is expected to see steady growth of about 1.5 per cent this year and the next. Civil engineering investments are forecast to swing to growth next year. According to Statistics Finland, construction costs have risen by 0.8 per cent compared with September 2018. (Source: Business cycle review by the Confederation of Finnish Construction Industries RT, 2/2019, Statistics Finland, Building Cost Index.)

Investors are maintaining a good level of interest in projects in Finnish growth centres. The value of transactions in the property market totalled EUR 9.3 billion in 2018. Office properties accounted for about EUR 3.6 billion, commercial properties for about EUR 2.2 billion, and residential properties for about EUR 1.8 billion. International investors in particular showed a great deal of interest in the Finnish market: they accounted for about 66 per cent of transaction volume. Apartments have become increasingly attractive as property investments in recent years, and interest remains high. (Source: KTI market review)

The Russian economy has continued to grow slowly. A dearth of investments and weak consumer demand will continue to hamper economic growth in Russia over the coming years. The Bank of Finland Institute for Economies in Transition (BOFIT) forecasts economic growth of about 1 per cent in Russia this year and 1.8 per cent in 2020. The major forecast risks are still posed by changes in the price of oil and the weaker-than-expected development of the outlook for the global economy and international relations. (Source: The Bank of Finland Institute for Economies in Transition (BOFIT), 3 October 2019.)

Interim report 1-9/2019, 31 October 2019