Source: SRV’s January-June 2024 Half-Year Report published on 18 July 2024
According to the Bank of Finland’s forecast in June, GDP will contract by 0.5 per cent this year. However, the economy is starting to gradually recover from the recession, with growth of 1.2 per cent and 1.7 per cent expected in 2025 and 2026. The modest growth of Finland’s key export markets depresses the outlook for Finnish exports for the time being. Exports will swing to growth in 2025 thanks to a pickup in global industrial production. Consumer confidence and real incomes remain weak, but the slowdown in inflation, pay raises and declining interest rates will gradually improve the purchasing power of wage earners. Private consumption is recovering little by little, but many households are still on a cautious footing. A significant deficit in public finances will persist over the next few years and the public debt ratio will continue to grow, even though the government has decided on large-scale adjustment measures. There are risks that trends in the global economy could be less favourable (source: Bank of Finland).
The European Central Bank (ECB) implemented several interest rate rises during 2023 in an endeavour to ensure that inflation returns to its two per cent target. At its meeting in June, the ECB’s Governing Council decided to lower the key interest rate by 25 basis points. Growth in the interest rates of new mortgages has ended and it is estimated that the three-month euribor will gradually decrease, settling at a level of 2.5 per cent in 2026 (source: Bank of Finland).
Consumer confidence improved in June. According to Statistics Finland, the balance figure for the consumer confidence indicator was -7.6 in June, while it was -10.3 in May and -12.6 in April. The figure for June is still low, but it is the highest since February 2022 (0.5). The indicator's long-term average is -2.5. Consumers’ views on the outlook for the Finnish economy and their own finances improved compared to the previous month, and intentions to buy a residential unit improved significantly (source: Statistics Finland).
Total construction is expected to contract by 5 per cent this year, depressed by housing construction. Poor demand among both consumers and investors has brought housing start-ups down to an historically low level. Housing sales are forecast to pick up slightly during 2024, but due to the high number of completed residential units, many new housing projects are on hold. It is estimated that 16,500 units will be started in 2024 and that the number will increase to 23,000 in 2025. The trend in the number of permits issued for business construction has also been weak, and the outlook for the next few years is muted. Public construction is now in full swing, with several major projects underway. The outlook for industrial and commercial buildings is reasonable, but there is a risk that projects might be delayed. On the other hand, there are many candidate projects and the situation may pick up as financing conditions become more favourable (source: Confederation of Finnish Construction Industries RT).
Real estate transactions collapsed to a record low last year. 2024 also got off to a muted start, with only EUR 0.5 billion in real estate deals signed in the first quarter. The share of the transaction volume accounted for by residential units declined to 12 per cent. The greatest transaction volumes were seen in industrial properties (28 per cent) and offices (14 per cent). Investors are cautious due to the recession, inflation and rising interest rates, and yield requirements have increased in all property segments. Investors expect real estate sales to pick up gradually in late 2024 as interest rates stabilise (source: KTI).
SRV’s view of the current market situation and its impact on the company’s operations is that the market situation for private projects will remain challenging in the short term. Interest rates have begun to fall, but are still quite high and declining at a relatively slow pace. High interest rates have a strong negative impact on demand among both private homebuyers and investors. In addition, the relatively high market supply of completed new units weakens the preconditions for starting up housing projects. On the other hand, construction costs have declined slightly, which has a positive effect on start-up preconditions. In business construction, availability of public sector projects is quite good, but demand is low in the private sector. The market is in many ways in a wait-and-see mode, focusing especially on the trend in interest rates.
January-June 2024 Half-Year Report, 18 July 2024