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Business environment

Source: SRV’s January-September 2023 Interim Report, published on 26 October 2023   

The Bank of Finland forecasts that GDP will contract by 0.2 per cent in 2023. The economy is burdened by rising prices and interest rates, coupled with weak export demand. Employment has dipped after rising for a long time, and the business community’s confidence in economic prospects has dimmed during the year. Although the cost level remains high, a slowdown in inflation will improve household consumption opportunities. Recovery from the recession will be slow, and will begin sluggishly in 2024. An upswing in GDP is forecast, first rising slightly to 0.2 per cent growth in 2024 and further strengthening in 2025. There are risks that trends in the global economy could be less favourable. (source: Bank of Finland).  

Although inflation seems to have peaked, interest rate markets have remained tight. The Governing Council raised the ECB’s key interest rate by 0.25 per cent at its September meeting. The Governing Council believes that the ECB's key interest rate is at a level that will slow inflation and steer it to the target level. The 12-month Euribor, which is a key interest rate for mortgage borrowers, stood at 4.2 per cent in the first week of October. The 12-month Euribor rate is expected to fall slightly in spring 2025. Rising interest rates and inflation have posed challenges for consumers, and this has been clearly evident in the marked weakening of demand in the housing market (source: Bank of Finland).  

Consumer confidence has remained low for a long time as a result of Russia's war of aggression. This index stood at -11.5 in September compared to -8.0 in August and -8.8 in July. The consumer confidence index was at -18.3 a year ago in September 2022. Consumers’ assessments of their own finances and the Finnish economy, both at present and in a year’s time, were at a very low level. Unemployment forecasts have darkened considerably in Finland. (source: Statistics Finland)    

Construction began to contract in autumn 2022. New construction startups and permits have plummeted during the past year. The Confederation of Finnish Construction Industries forecasts that construction will contract by 10 per cent this year and by 2 per cent in 2024. At the end of 2022, the intentions of households to buy a residential unit declined significantly due to surging energy prices and higher interest rates. The volume of housing construction will fall by almost 40 per cent in 2023, and this decline will continue into 2024. It is expected that approximately 16,000–20,000 residential units will be started this year and 19,000–24,000 in 2024. The trend in building permits for business premises also began to decline in 2022 as uncertainty and high costs hindered tender operations. On the heels of the weak trend in permits, the volume of the construction of business premises continued to fall this year. Next year, the outlook for public service construction, industrial and warehouse construction, and commercial and office construction is brighter than for other types of construction. Investments in the years ahead will be supported by a slowdown in the rise of construction costs (source: Confederation of Finnish Construction Industries RT and Forecon).    

The real estate market has had a challenging year and the trading volume has slowed down. Real estate transactions totalled about EUR 1.8 billion during the first three quarters, which is the lowest volume since 2013. The transaction volume amounted to around EUR 0.4 billion during the third quarter. Housing accounted for more than 30 per cent of the transaction volume in the first half of the year. It was followed by offices (22 per cent) and industrial properties (19 per cent). Transactions by foreign investors represented more than fifty cent of the total volume. Investors are cautious due to the recession, inflation and rising interest rates, and yield requirements have increased in all property segments. Investors expect renewed activity in real estate transactions towards the end of the year. (source KTI)

Based on SRV’s assessment of the prevailing market situation and its impacts on the company’s operations, demand in housing sales will remain weak in the near future among both consumers and investors. For this reason, start-ups of new housing projects will remain very low in the entire market in the short term. The market for business premises is also more challenging than before, but is more upbeat than the housing market and more polarised in terms of demand. The public sector is making investments, and industrial investment demand is more active.  In addition, there is still demand for user-oriented business premises in the current market situation. The rise in interest rates has increased investors’ return requirements in all real estate segments, and investors have had more limited access to borrowed capital.  

Interim Report January – September 2023, 26 October 2023

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