Business sentiment slightly softer as Irish business addresses Brexit, staff shortages and data protection concerns

Apr 27, 2018
  • Growth in activity and hiring slightly softer of late but conditions still very positive
  • Survey hintspace of Irish economic growth to moderate but remain healthy
  • Irish businesses resorting to multiple responses to staff/skill shortages rather than simply raising pay
  • Brexit, staff shortages and data protection the key concerns facing Irish business

Irish business sentiment has slipped somewhat as companies reported a slightly slower pace of growth in their activity levels and hiring in the past three months. This doesn’t imply any marked weakening in the prospects for Irish business or the broader economy although it does suggest the rate of growth might ease compared to that seen in the past year.

The KBC Bank/ Chartered Accountants Ireland business sentiment index slipped to 116.4 in the spring of 2018, largely reversing the previous quarter’s gains that took the index to a two year peak of 120.8 at end 2017. The sentiment index remains some distance below its 2015 peak (130.5) which implies that the pace of improvement in business conditions has moderated of late.

The trend in business sentiment in early 2018 remains consistent with a strong Irish economic performance. On the basis of the historic relationship between the business sentiment survey and official GDP data, the current sentiment reading (if sustained) could be consistent with Irish GDP growth in the region of 5% in 2018.  

Responses to supplementary questions in the survey suggest companies have taken a wide range of measures rather than simply resort to pay increases in response to staff/skill shortages. While increased pay has been an important element, it has not been the most prevalent response. The most widely seen response to staff/skill shortages, adopted by three out of four Irish based companies, has been to address the problem by internal training.

Measures to increase flexibility of contracts, hours and work practices were introduced by just under half of the firms surveyed.  The openness of the Irish jobs market is reflected in the finding that as many 38% of companies resorted to overseas hiring in response to staff shortages. While Irish based companies have adopted multiple strategies to minimise the impact of skill shortages, a not insignificant 17% of firms have been forced to modify their expansion plans because of the constraint it imposed on their growth capacity.

While Brexit remains a key concern, most companies are typically focussed on a range of concerns rather than a single specific issue at present. It appears that companies are paying equal attention to pay and data protection issues as they are to Brexit at present.

The fact that data protection issues are regarded as broadly based a concern reflects the confluence of the introduction of the General Data Protection Regulation, some high profile cases around alleged data misuse and broader and quite fundamental questions about the gathering, storage and use of personal data by companies. The importance of data protection issues to Irish business at present is further highlighted by the survey finding that 80% of businesses had taken specific actions to address concerns in this area.

Commenting on the survey, Barry Dempsey, Chief Executive, Chartered Accountants Ireland, said:

The slight easing in business sentiment of late is partly a reflection of  severe weather through March but it also hints that while the pace of growth in business volumes and in the broader Irish economy should remain solid it may be somewhat slower than was seen in 2017

Companies have responded to staff and skill shortages in many ways reflecting the complexity of this issue. Perhaps surprisingly, internal training rather than higher pay has been the most common response and this was adopted by 76% of companies. Some 48% of companies have offered increased flexibility in work practices, about the same number as responded through pay increases.  While 38% of firms have hired from abroad, 17% say they have had to modify their expansion plans. These results suggest this is a wide ranging issue and there is no single ‘silver bullet’ answer to what is an important and continuously evolving issue in Ireland’s dynamic labour market.    

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

The drop in business sentiment was driven by softer activity levels and hiring in the past three months but companies expect some pick-up in coming months and the general tone of the survey suggests a positive outlook remains firmly in place

While business conditions are evolving positively, Irish companies are grappling with a range of concerns, with three issues to the fore at present.  Brexit is no longer the overarching focus as firms deal with what are seen as more immediate problems in the shape of staff/skill shortages and data protection issues. Regulatory deadlines and increased focus on data privacy issues led four out of five firms to say they had taken specific action in this area in the past six months.    

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 spring 2018 survey was conducted from 6 to 16 April 2018 and the results presented are based on 302 completed responses. Read the full report here.