Commerce will begin to slightly grow next year – the government will support the international competitiveness of commerce with its RDI policy

At the end of the year, commerce will be reaching the bottom of the economic cycle. Wholesale and b2b trade continue to be curbed by the recession in residential construction and low orders from industry, and the coming months are expected to be difficult. However, by next year at the latest, the economic turnaround is expected to stimulate order intake from both industry and construction.

The decline in the retail trade’s sales volume has continued this year, but the development has been divided. Department store sales began to grow right from the beginning of the year, as did the grocery trade, but in a more moderate manner. However, the specialty goods trade and particularly its major sectors – hardware, household technology, interior decoration and sporting goods – have continued to shrink. This has been influenced, among other things, by the rush of Chinese platform giants into the domestic market. Both in Finland and extensively elsewhere in the EU, the need for the uniform application of legislation and requirements has emerged, including to operators outside the internal market.

“Consumer price-drivenness has been directly reflected in the growth of the so-called cheap retail sector, which has continued faster than other retail trade during the spring. However, its growth has slowed since last spring,” says Jaana Kurjenoja, Chief Economist of the Finnish Commerce Federation.

The profitability of the cheap retail trade, as well as other retail trade and wholesale trade, is currently driven by the unexpected multiplication of Chinese sea freight costs.

The gradual growth of the retail sector will begin next year

For this year, the Finnish Commerce Federation predicts that the volume of sales in the retail trade will continue to decline by approximately one per cent.

“Although the volume of sales is still decreasing, the pace is slower than last year. Next year, the retail trade will begin to gradually grow, but growth rates such as those from before the financial crisis are not expected,” Kurjenoja describes the forecast.

Declining employment and slow economic growth are reinforcing consumer uncertainty, and the general VAT rate, which will increase in September, is eating into purchasing power. Although the interest rate will start to decline in the course of the autumn, this will only be reflected in consumers’ wallets with a delay.

“In addition, interest rates will not return to the former exceptional zero-interest state in the next few years at least, and the costs they bring to both consumers and companies will remain higher than in early 2022,” Kurjenoja says.

The forecast slow growth in retail trade is not enough to change the downward trend in employment in commerce, the largest employer in the private sector.

The forecast involves both positive and negative risks

The forecast includes both positive and negative risks. The forecast growth in the retail trade for next year may not be realised if, for example, new tax decisions are made to slow down public sector indebtedness that reduce purchasing power. The international security situation may also deteriorate and create unexpected additional costs, including for logistics. Particularly the slow digitalisation of specialty goods trade and the limited resources for RDI activities may erode productivity and international competitiveness, leading to the loss of markets to foreign trade.

On the other hand, economic growth may begin faster or stronger than expected, and employment may begin to grow earlier, which may increase consumption demand and the retail trade. Growing purchasing power can boost specialty goods trade in particular.

“However, it is good to remember that the growth in private consumption does not necessarily channel itself to the retail trade when purchasing power is used for other services and, for example, living,” Kurjenoja points out.

Political decisions have a major impact on the international competitiveness of commerce

The productivity of work in commerce has grown significantly slower in Finland than in Sweden. At the same time, the investment rates in commerce are higher in Sweden. This gives Swedish commerce a better starting point to internationalise and compete for new markets.

“In the future, Business Finland’s programmes and financial instruments, for example, should also be developed to improve the productivity of commerce and services and thereby improve international competitiveness,” says Kari Luoto, Managing Director of the Finnish Commerce Federation.

Although large domestic retail chains have invested heavily in RDI activities, specialty goods trade and wholesale trade SMEs do not always have sufficient resources or expertise for this.

“However, specialty goods trade and wholesale trade in particular have the potential to become international and take major leaps in productivity,” Luoto continues.

The government’s tax policy also has an impact on future economic growth and the development of commerce. The increase in VAT in September is damaging, especially for specialty goods trade in fierce international competition.

“Taking the public sector out of debt is an understandable goal. However, the reduction of purchasing power through tax policy should be avoided, especially if the sectors affected by tax rulings are not supported to improve productivity and competitiveness through RDI policy,” Luoto says.

For further contact:

Jaana Kurjenoja, Chief Economist, Finnish Commerce Federation, tel. +358 (0)40 820 5378, jaana.kurjenoja(at)kauppa.fi

Kari Luoto, Managing Director, Finnish Commerce Federation, tel. +358 (0) 400 688 708, kari.luoto(at)kauppa.fi