The economic outlook for Finnish SMEs has improved significantly since last spring, driven by declining inflation and falling interest rates. In particular, SMEs employing 20–49 people showed surprisingly positive results. The situation for SMEs in the construction sector is also gradually improving, according to the SME Barometer published on Wednesday.
The direction of the economy largely depends on factors such as the recovery of private consumption and falling interest rates, both of which carry uncertainties. SMEs predict that the economic situation will remain stable over the next year.
“The economic outlook for SMEs is becoming more positive compared to last spring. I see this as an encouraging sign of an economic turnaround. Strong SMEs are also crucial for employment,” says Minister of Economic Affairs Wille Rydman.
Investment appetite remains modest, but recruitment plans are slightly improving
Investment appetite among Finnish SMEs remains modest. Across all main sectors, there are more companies reducing their investments than those expecting an increase.
However, compared to the spring barometer, recruitment intentions among SMEs have strengthened. About 14% of SMEs plan to increase their workforce, while 11% expect a reduction. The majority, 74%, intend to maintain their current staff levels.
Growth ambitions remain modest but are slightly rising
SME growth ambitions have been declining for some time, but the numbers now show signs of stabilizing. More than a third of SMEs are either strongly or moderately growth-oriented. The share of strongly growth-oriented SMEs has risen slightly from the low levels seen in spring. However, growth ambitions remain modest compared to previous years.
The positive outlook is particularly strong among companies employing 20–49 people. These companies act as drivers of growth and spread new innovations. They also have the potential to become Finland’s much-needed international frontrunners.
“The long-term downward trend in growth ambitions seems to have halted. Finland needs more growth orientation and reforms that encourage entrepreneurs to take risks and pursue growth,” says Juhana Brotherus, Chief Economist of the Federation of Finnish Enterprises.
Growth through research and development activities
The success and growth of Finnish companies are based on expertise, new knowledge, and innovations. One in four SMEs report engaging in research and development (R&D) activities, with the highest proportion in the industrial sector, where 40% of companies are active in R&D. Additionally, 16% of SMEs are considering increasing their R&D efforts in 2024 compared to the previous year.
The most common sources of public funding for R&D activities are local and regional authorities, such as ELY Centres, and Business Finland. A significant number of SMEs also collaborate with educational institutions, research organizations, or development companies.
“It’s positive that SMEs are willing to increase their R&D activities. Without this, we won’t achieve the growth that Finland urgently needs. I encourage SMEs to strengthen their R&D efforts. The government is committed to achieving a 4% R&D target by 2030, with one-third of the funding coming from public sources and two-thirds from private sector investments,” says Minister Rydman.
Growth in Finland’s service exports
Direct exports are the most common form of internationalization for SMEs. The share of companies engaged in direct service exports has risen to 42% of all exporting companies, up from 35% a year ago. At the same time, the share of companies engaged in direct goods exports has fallen to 36%. The SME Barometer results show that the proportion of SMEs involved in service exports has surpassed that of goods exporters.
“The results suggest that the importance of services in Finland’s exports is gradually strengthening. Diversifying the structure of exports is positive for the entire economy,” Brotherus notes.
Financing environment remains challenging – where to find investments for growth?
While the worst of the economic downturn for SMEs may be over, challenges in obtaining financing persist. In the autumn barometer, 43% of companies in need of financing reported that they had not received or sought financing despite the need. In spring 2021, this figure was 25%.
“The availability of financing is moving in the wrong direction. Payment difficulties among companies have also increased significantly, with 20% of SMEs reporting difficulties over the past three months. The last time the figure was this high, at 19%, was during the pandemic. The silver lining is that fewer companies have postponed investments compared to last spring,” says Mauri Kotamäki, Chief Economist at Finnvera.
Finnvera is increasingly being called upon to guarantee bank loans for companies. Among strongly growth-oriented SMEs, as many as 75% required Finnvera’s guarantee to obtain bank financing.
“Finnvera’s guarantees are tremendously important for companies. Finnvera fulfills its role in financing growth-oriented companies. However, one might ask whether Finnvera’s growing role signals a structural issue in bank lending policies in the financial markets,” Kotamäki reflects.
According to Kotamäki, Finnvera continuously monitors the corporate loan market closely.
“We don’t want to distort the market by competing with financial institutions, but we’re constantly trying to identify market gaps. In early October, we’ll launch a six-month pilot for a microenterprise investment loan to gather more information about the financing environment for microenterprises. Based on these experiences, we aim to direct financing to areas where market gaps exist,” Kotamäki concludes.
