Swedbank survey reveals industry rock bottom with anticipation of slow recovery

TALLINN - A survey conducted among Swedbank's industrial clients indicates that the challenging situation in the industrial sector persists, but the bottom has been reached, and the future outlook is somewhat more hopeful.

For the current year, companies forecast a decline in revenue, but expectations for profitability have increased slightly, and the volume of investments is higher than last year.

The turnover of the industrial companies participating in Swedbank's survey accounts for one-third of the total turnover of Estonia's manufacturing industry. 

"These companies predict that the sector's revenue will fall by an average of one percent this year. Medium and large companies are forecasting a more significant decline in revenue. The most fragile sectors are machinery and metal, electronics, and furniture manufacturing. Conversely, the timber industry expects nearly a five percent increase in revenue, although this is mainly due to stockpiling in Europe rather than a genuine increase in foreign demand," Raul Kirsimae, head of Swedbank's industrial department, said.

Nearly 70 percent of companies expect profitability to grow or remain the same as last year. The most crucial issue for industrial companies is maintaining competitiveness, which 80 percent of companies considered the greatest risk.

"The risk of ensuring liquidity has been rated slightly higher than last year, but concerns about retaining key employees, which were among the top three risks last year, have been replaced by worries about declining demand in foreign markets. This issue particularly affects machinery and metal industries and construction material manufacturers," Kirsimae said.

Among key target markets, sales volumes fell most in Scandinavia, with companies highlighting Finland and Sweden, demonstrating the strong connection of Estonia's economy with its northern neighbors. Industrial companies are more actively seeking new markets than before.

"Compared to a year ago, the percentage of companies actively looking for new markets has increased by 10 percent. Today, 53 percent of industrial companies plan to expand to new markets, which is a very positive sign. The main new target country companies are focusing on is Germany," Kirsimae said.

The volume of investments is expected to grow by just over 7 percent this year, with almost half of the companies planning to invest slightly more than last year.

"This growth is driven by certain large and specific investments. There are also differences across sectors -- investments are increasing in the machinery and food industries, but the timber industry is a significant concern," Kirsimae added.

The number of employees is expected to decrease by an average of 1 percent this year, with small companies with a turnover below 10 million euros anticipating a slight increase in staff, while medium and large companies foresee a decrease.

"This result aligns with declining production volumes and revenues. Salary growth is also slowing down, with the average salary expected to rise by one-third less than last year, reaching 4 percent," said Kirsimae.

The 13th survey on the state of Estonia's industrial sector was conducted in March and April, involving 265 Estonian industrial companies employing nearly 28,000 people. The annual total revenue of the participating companies is 5.7 billion euros.