Summary

After two negative years, the expectations of small and medium-sized enterprises (SMEs) concerning the economy have improved significantly. Reduced inflation, interest-rate cuts and successful decoupling from Russian energy and Russian trade turned the negative expectations into a positive increase during 2024. The economic outlook balance rose by one point from the autumn 2024 barometer and now stands at one.

Just under a quarter, 24.6%, of SMEs believe that economic conditions will improve during the next 12 months, while 23.4% believe they will worsen. In the spring 2024 barometer, there were seven percentage points fewer SMEs forecasting better economic conditions and eight percentage points more predicting worsening economic conditions. Compared to autumn 2024, the shares remained almost unchanged. Just over half of SMEs believe that the economic conditions will remain the same.

The expectations of SMEs expectations concerning the Finnish economy are, thus, broadly similar to or slightly weaker than most other forecasts. Economic growth assessments based on GDP predict that the Finnish economy will grow by 0.8–1.8% for the rest of the year. In any event, the economy and the expectations of SMEs are in a state of exceptionally high uncertainty.

Rising expectations of increased turnover, but uncertainty cuts investments

SMEs have begun to expect that their turnover will increase at the same time as their general expectations of the economy have risen. The balance regarding turnover expectations rose by nine points from the spring 2024 barometer and three points from the autumn 2024 barometer to ten points.

The expectations of SMEs about profitability have dropped considerably in recent years, while, simultaneously, general confidence in the economy has decreased. The uncertainty of businesses concerning the future has started to ease, but the balance regarding profitability expectations remained the same at -6.

SMEs expect to significantly reduce their investments in the near future. As a consequence of extended uncertainty and a weak economy, all sectors contain more companies that are reducing their investments than companies that expect to increase investments. Despite the small increase, the investment expectation balance is still deeply negative at -13.

SMEs cautious about hiring more staff

The negative effects of increased interest rates and trade and geopolitical instability have in recent years reduced expectations concerning hiring more employees. In 2024, the balance of hiring expectations has returned to a marginally positive level.

Fourteen per cent of SMEs intend to hire more staff over the next year. By contrast, 11% expect to reduce their headcount. The balance of expectations was 2, one point higher than the autumn 2024 barometer. A large majority, 74%, of SMEs intend to retain their current staff levels.

The changes in the headcounts of businesses are linked to investment appetite: the availability of workers is a requirement for investments. On the other hand, the willingness to invest is one of the reasons behind increasing headcounts.

Growth potential from reinvention and internationalisation

The numerous crises of recent years have not significantly dampened the growth appetites of companies. Over one third of SMEs continue to want to grow either strongly or as much as possible. The share of SMEs with strong growth appetites remained unchanged from the autumn 2024 survey, but rose by two percentage points from spring 2024. The share of SMEs with strong growth appetites continues to be modest, and a downward trend over the longer term is concerning.

Almost a quarter of SMEs have adopted new technologies in the last year, and just over half of SMEs have trained their staff. In addition, just under three businesses in ten have brought new products or services onto the market. Internationalisation is also a way for many SMEs to grow and strengthen their competence. In many sectors, Finland’s domestic market is relatively limited, so growth has to come from abroad. 21% of SMEs engage in exports or carry out other business activities abroad.

Economy and stringent regulation reduce use of external finance

The prolonged difficult economic situation and the consequent reduced credit eligibility of businesses, combined with banking regulation, is visible in SMEs’ use of external finance: the barometer shows that under half of SMEs have a loan from a bank or other lender. The share of SMEs with a loan from a bank or other lender has decreased slightly since last autumn’s barometer.

The concentration of the Finnish banking sector is reflected in access to financial services for SMEs. The two largest players accounted for 71% of SME services as the main bank for the company, according to this barometer. Finnvera’s role as an alternative to bank loans and as a top-up lender has increased slightly and one in five of those planning to apply for finance say they will turn to Finnvera. Moreover, 34% of SMEs that had applied for financing from a bank said that securing the finance required a Finnvera guarantee.

Despite a more challenging year than expected, the number of SMEs in payment difficulties fell slightly towards the end of the year. In this barometer, 18% of businesses reported difficulties in managing their payments in the last three months. The share fell by two percentage points from the autumn 2024 barometer.

Economy requires adjustment measures, and uncertain demand is holding back growth

The difficult and rapidly changing business environment is reflected in the need for companies to adjust. Almost one in four businesses are now planning to adjust. However, the need for adjustment has fallen by one percentage point since a year ago. The most common adjustment measures planned are lay-offs and various working time arrangements.

Labour availability is still one of the main reasons why companies do not hire more staff. Around half of SMEs feel that the availability of a skilled workforce that meets their needs is, at least to some extent, a constraint to growth. The more growth-oriented a company is, the more often the availability of skilled labour is perceived as a barrier to growth and employment.

Digitalisation of SMEs has accelerated and the use of AI has increased

The COVID-19 period increased the pressure on SMEs to digitalise their business, as face-to-face interaction decreased and more and more of their day-to-day business was done digitally. The pace of the adoption of digital services and tools by SMEs looks set to accelerate further from autumn 2023.
Company websites are still by far the most widely used digital tool for business. SMEs are also making use of social media, cloud services, online shopping, etc. The share of AI and robotics applications has also risen by a substantial nine percentage points, almost doubling from autumn 2023 to 20%. This big AI leap is probably explained more by the widespread adoption and accessibility of generative AI, which has reached a large audience.

Around one in three SMEs see the use of AI in their business as a topical issue now or in the next year. Just over a tenth of SMEs say that they use AI regularly and just under a third occasionally. AI is most commonly used for brainstorming, translation, communication, marketing and sales growth. The greatest barrier to the use of AI was perceived to be a lack of knowledge or skills, reported by 48% of SMEs. Almost a quarter of SMEs reported a lack of time and security risks as a barrier to using AI.

Change of ownership creates continuity

The transfer of ownership through an acquisition, generational change or other means creates the opportunity for a business to continue. In the next two years, 14% of businesses are planning to change ownership. The share has not changed much since a year ago.

Nine per cent of SMEs are interested in buying a company or business in the next two years. Of these businesses willing to buy, 74% need external financing.