Irish business activity and confidence continuing to strengthen and broaden

Aug 23, 2017

Chartered Accountants Ireland / KBC Bank Ireland Business Sentiment Summer 2017
Summer 2017 business sentiment survey strongest for six quarters

  • Details suggest recovery is continuing to broaden and reaching more sectors and companies  
  • Firms cautious on new hiring but headcount reductions at record low
  • Rebound in confidence suggests slowdown fears about Brexit and possible US policy changes haven’t materialised  
  • Little sign of broadly based overheating concerns or capacity strains as business conditions ‘normalise’
  • Survey suggests Brexit planning has been to the fore in Irish business thinking of late  
  • 77% of firms have a sense of likely Brexit impact on their operations with more than half of these already taking action    
Irish business sentiment improved notably in summer 2017 to its strongest reading since late 2015. The pick-up was driven by stronger business activity levels of late and a further easing in concerns about the outlook for the Irish economy. 

The KBC Bank Ireland/Chartered Accountants Ireland business sentiment index rose to 118 in the summer quarter from 110.6 three months earlier. The latest increase marks the fourth consecutive quarterly gain which means the index has recovered to levels seen before the UK Brexit vote or the increase in uncertainty about US policy intentions but sentiment remains notably softer than the recent series peak of 131.1 recorded in late 2015. While fears have eased, continuing uncertainty means companies remain cautious. 

The increase in Irish business confidence in the past three months is largely a reflection of a healthier trend in business volumes and in the broader Irish economic backdrop than might have been feared. The trend in the sentiment survey tends to reflect the broad contours of Irish GDP data (with the understandable exception of the 2015 step-shift). In this respect, the data suggest that positive momentum is still building. However, the details of the summer survey, particularly in relation to job creation, suggest that companies are responding to still elevated levels of uncertainty by adopting a relatively cautious approach to expansion plans.

The summer survey suggests there has been a clear pick-up in Irish business activity levels in the past three months.  There was both a rise in the share of companies reporting higher output volumes and a decline in the share of companies reporting weaker conditions. Encouragingly, the drop in negative responses exerted the larger influence. The fact that only 8% of companies reported declining output of late suggests a further widening of the basis of the recovery across Irish businesses and also hints that any adverse impact from currency movements or uncertainty related to Brexit has been reasonably contained.   

The survey attempted to gauge whether companies judged that either their current level or the pace of growth was particularly strong. The responses do not suggest that Irish business is currently experiencing any marked strains that might warn of overheating threats. About 70% of Irish companies feel that their current operating levels are normal and not developing in a manner that would suggest an unsustainable pace of growth in their output. Consequently, current conditions might be described as a ‘normalisation’ of activity as the recovery after a severe downturn becomes more mature. 

The survey also included a question on Brexit to establish how business responses to this issue are evolving. Responses suggest that there continues to be some variation in companies’ assessments of the impact but the large majority of firms-some 77% of those surveyed now feel they have a strong or some sense of what Brexit may mean for them. 

Just over half of those reporting a strong or some sense of the impact - some 36% of respondents to this question indicated that they have already taken what they deem to be appropriate action. Of the balance, it may be that some envisage no material impact while others may feel that they can’t take action until the UK leaves the EU or there is greater certainty about the precise form the UK’s post exit relationship with the EU will take. 

Austin Hughes, Chief Economist, KBC Bank Ireland, said: “The improvement seen in business sentiment in summer 2017 is really encouraging in that the details of the survey suggest the recovery is now reaching a notably wider range of companies and that earlier fears of a speedy and substantial hit to activity from Brexit have not materialised. Instead, activity has increased and is expected to grow further in the coming quarter.”

Barry Dempsey, Chief Executive, Chartered Accountants Ireland, said: “The survey finds that 77% of companies have at least some sense of the likely impact of Brexit on their operations and more than half of these have already taken action in this regard. This is positive in that it suggests Irish business has been proactive in assessing and implementing a response to Brexit rather than being lulled into complacency by limited signs of progress in the formal Brexit negotiations thus far or the possibility of a significant ‘transition’ period after 2019 when the UK is scheduled to leave the EU.”  
Barry also said: “While Irish business conditions have continued to strengthen of late, ongoing caution in the face of significant uncertainty has meant there has not been a corresponding step-up in new hiring. That said, the number of firms reporting a reduced headcount fell to the lowest level in the eleven years of the survey. Again, this suggests that the recovery in the Irish economy is broadening further and being felt by an ever-increasing number of companies.”

Austin Hughes commented: “The survey shows little signs of business strains that might suggest the presence of significant overheating risks in the Irish economy.  While 12% of firms cite what might be termed ‘hot’ operating conditions, a slightly larger number report a cooling of late with the vast majority of businesses suggesting their activity levels are normal at present. Similarly, 86% of companies say their costs are stable or increasing modestly although many note that wage costs have increased of late. These responses suggest the economy may face specific issues but these do not fit the picture of the traditional ‘overheating’ narrative at present.”  


For further reference contact:
Karen Jones, Gibney Communications, 01 661 0402 
Brendan O’Hora, Director, Communications and Marketing, Chartered Accountants Ireland, 01 6377298

Notes for editors: 
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 Summer 2017 survey was conducted from July 31 to August 8 2017 and the results presented are based on 354 completed responses. 
The full Business Sentiment Report for Summer 2017 is available here