Irish companies report slightly softer slower growth as Brexit risks persist

Nov 20, 2017

KBC Bank Ireland / Chartered Accountants Ireland Business Sentiment Survey Autumn 2017

  • Companies report slight easing in pace of growth in past three months.
  • Hiring remains strong as confidence in economic outlook improves.
  • Vast majority of firms don’t see ‘overheating’ in their operating environment at present. 
  • Pay increase of 2% the norm for 2018; very few firms seeing no rise or increases above 5%.
  • Expected Brexit impact varies widely but predominantly negative and slightly greater than first envisaged; adverse impact expected by one in two firms, positive impact by one in six.
  • Roughly half of Irish companies not focussed on Brexit at present, implying a risk of some unpleasant surprises

NEWS BODY - Irish companies report slightly softer slower growth as Brexit risks persist-min

Pictured is Barry Dempsey, Chief Executive, Chartered Accountants Ireland and Austin Hughes, Chief Economist, KBC Bank Ireland.

Irish companies continued to post solid gains in business volumes in recent months but the pace of growth in activity appears to have eased somewhat
of late. The KBC Bank/Chartered Accountants Ireland business sentiment index edged lower to 116.6 from 118 in the previous quarter but the autumn 2017 business survey reading remains consistent with a relatively robust rate of growth in Irish GDP.

The slight easing in business sentiment was largely driven by modestly slower growth in companies’ own activity levels in the past three months. It remains the case that a majority of firms are reporting increased business volumes but, compared to the previous quarter, there was a small reduction in the proportion of companies reporting higher activity and a similarly small rise in the number reporting lower output levels.

This change was most pronounced among construction firms and hints at some easing in the pace of growth in building activity in recent quarters and the possibility that some firms in this area may already be experiencing capacity strains. However, several other elements of the survey suggest such problems are the exception rather than the rule.

The slightly softer pace of growth reported by Irish businesses in the past three months is expected to persist in the final months of 2017.

Healthy activity levels underpinning hiring

While there was a slight easing in the pace and spread of growth of late, it remains the case that Irish business conditions are very healthy at present. This has translated into continuing strength in payroll trends in Irish companies. New hiring picked up slightly in the past three months but there was an offsetting increase in the number of firms reporting a drop in their headcount. Again, we would emphasise that these findings caution against a ‘one story tells all’ description of Irish business conditions.

It is important to note that all sectors continue to report notably larger number of firms expending their payroll than those seeing lower employment levels. The improvement in the Irish jobs market is now broadly based with firms in manufacturing, business services and consumer goods and services all reporting a pick-up in the pace of payroll gains in the past three months.

We also asked companies what scale of average pay increase they envisaged making in 2018. Increases of less than 2% are most common followed closely by increases between 2 and 3%, with two thirds of firms falling into this range. Only a very small fraction of firms see average pay increasing by more than 5% in 2018, with most of these concentrated in business services and property sectors. However, construction firms also tended to figure prominently in those companies expecting no increase in pay next year, emphasising significant variation across firms in this sector. Aggregating the responses to this question across all sectors, the survey suggests the average pay increase envisaged in Irish-based companies in 2018 is 2%. 

Confidence gradually rebuilding after Brexit shock

The survey asked a number of questions to assess companies’ attitudes and actions in relation to the UK’s exit from the EU. We began by asking the direction and scale of impact they envisaged Brexit would have on their business. The responses suggest Irish based companies anticipate a significantly negative outcome overall although there are notable differences the effect of Brexit is seen having on individual businesses; one in two firms expect an adverse impact compared to one in six that expect a boost to their business. Only one in five firms expects no significant impact from Brexit on its activities.

The survey went on to ask whether companies’ assessments of Brexit impacts had altered much in the sixteen months since the UK referendum vote. The answers suggest that Irish business has become somewhat more pessimistic in regard to Brexit in spite of the apparent resilience of the Irish economy to the early currency related fallout.

Roughly one in three firms is more negative now than in the immediate aftermath of the UK vote while roughly one in five now takes a more positive view. Manufacturing and construction firms were more likely to have downgraded their assessments of late whereas upgraded views were more common among property and business services firms. 

Barry Dempsey, Chief Executive, Chartered Accountants Ireland, said:

Companies are still reporting solid growth overall, but the pace of increase appears to have eased of late. This seems to reflect a variety of influences ranging from capacity constraints facing some construction companies to currency movements affecting companies in food and manufacturing but, in each instance, this is seen slowing rather than stopping growth.

“A still healthy business environment has seen a slight pick-up in new hiring even though the survey suggests finding suitably qualified employees has become more difficult. While most of firms expect their pay bill to increase in 2018, four out of five expect increases to be less than 3%, with the average rise in earnings expected to be 2% overall.”

Austin Hughes, Chief Economist, KBC Bank Ireland, said:

Only one in five Irish based firms doesn’t envisage any impact on their business from Brexit. While expectations vary, about half of the companies surveyed think they will be affected negatively with just one in six anticipating a positive effect.

“Companies are now slightly more pessimistic in their assessment of Brexit on their business and roughly half see the peak impact being felt by March 2019. As a result, it is slightly surprising that the survey found no major pick-up in Brexit preparations of late and one in two companies reported they had no significant focus on Brexit at present.” 

The KBC Bank Ireland / Chartered Accountants Ireland Business Sentiment Survey reflects the view of Chartered Accountants working in senior positions (CEOs, MDs and FDs) in Ireland’s leading companies. The Autumn 2017 survey was conducted from 25th October 2017 to 3rd November 2017 and the results presented are based on 448 completed responses.

ENDS

For further reference contact:
Karen Jones, Gibney Communications, 01 661 0402 / 086 866 4501
Christine Walsh, Gibney Communications, 01 661 0402 / 085 157 7127
Austin Hughes, Chief Economist KBC Bank, 087 669 6972
Brendan O’Hora, Director, Communications & Marketing, Chartered Accountants Ireland, 01 6377298