Hard Brexit worries hit Irish business confidence

Oct 25, 2018
  • Irish business sentiment slips to six year low in Q3
  • Sentiment slide suggests Irish companies now grappling with hard Brexit threat
  • Gloomier view of Irish economic prospects aligns with slower increase in business activity
  • Sentiment notably more cautious of late but not collapsing
  • Business survey still consistent with broadly felt gains in output and employment…
  • ….but increased uncertainty may be leading to slower gains in production and hiring
  • Brexit seen dwarfing all other risks to Irish economy in 2018
  • Sentiment survey highlights similarities in business conditions on both sides of Irish sea and consequent risks posed by Brexit
  • Few businesses see Budget 2019 materially altering plans for year ahead

Dublin, 25th October 2018: Irish business sentiment weakened notably in the third quarter as the pace of output growth slowed and an increased focus on Brexit-related risks weighed on confidence, according to the latest KBC Bank/ Chartered Accountants business sentiment survey published today. The findings of the survey are consistent with healthy conditions in the Irish economy, but the focus of Irish companies has shifted notably from recovery to risk of late.

The KBC Bank/Chartered Accountants Ireland business sentiment index dropped to 99.4 for the three month period ending in Mid-October from the previous quarterly reading of 114.2. The autumn 2018 reading is marginally lower than the 99.9 reading seen in autumn 2016 in the immediate aftermath of the Brexit referendum in the UK and, as such, is the lowest since the winter 2012 figure of 92.9. It should be emphasised that this result does not mean that the level of business activity in Ireland has slipped to a six year low. Instead, the survey suggests that the pace of growth in activity and the mood of business have fallen back markedly towards those that prevailed in late 2012

While business confidence hasn’t collapsed of late, the mood of Irish based companies has changed markedly and turned much more cautious. This seems to reflect the increased threat that the UK could ‘fall out’ of the EU as soon as March 2019 without a transition deal or clarity about the future trading relationship with our near neighbour. Companies have started to consider the possibility of a ‘breakdown Brexit’ in five months rather than the ‘Brexit bump’ that a carefully choreographed ‘soft’ Brexit more than two years away would likely entail.

The emergence of this unclear and present danger has understandably altered Irish business thinking markedly. Companies have had to contemplate the potential consequences of major disruptions to the Irish economy’s capacity to trade and, in many instances, to their own supply chains in five months’ time. 

The survey hints that a notably more uncertain outlook may already be leading some firms to curtail the pace of growth in activity and employment while others could be encountering sector specific ‘speed bumps’.  As a result, the autumn business sentiment survey emphasises significant contrasts in the current experience of individual companies rather than a universally enjoyed ‘boom’ in business conditions at present.  

The fall in Irish business confidence of late mirrors a similar deterioration in UK order books that underlines the pervasive links between business conditions on either side of the Irish Sea. The weakening in the latest Irish sentiment index chimes with this week’s UK CBI monthly trends enquiry for October which saw quarterly order books decline at their fastest pace in three years.

Commenting on the survey results, Mr Barry Dempsey, CEO of Chartered Accountants Ireland noted: “The KBC Bank/Chartered Accountants Ireland business sentiment index has slipped to its lowest level since 2012 as firms grapple with the increasing possibility that, in the event of a hard Brexit, the trading capacity of the Irish economy and, in many instances, their own supply chains could be hugely disrupted in just five months’ time.”

Mr Austin Hughes, Chief Economist at KBC Bank Ireland, author of the survey commented: “Brexit is overwhelmingly seen as an unclear and present danger to Irish economic prospects with 67% of companies citing it as the major risk to the economy in the coming year.  As the next ranked concern, overheating in the Irish economy was cited by just 9% of companies, this indicates how pervasive Brexit worries have become of late.”

Mr Dempsey added: “The autumn business sentiment survey shows a clear cooling in the pace of growth at Irish companies of late. It remains the case that activity and employment are increasing across the main business sectors, but the spread of gains has narrowed as firms adopt a more cautious approach in an increasingly uncertain environment.”

“Some 47% of companies see Irish economic growth slowing next year but 29% expect stronger growth. Budget 2019 is not seen materially altering the outlook for the Irish economy in 2019. While 19% of firms see the Budget improving the economy’s capacity to cope with Brexit, another 7% think it may weaken that capacity,” added Mr Hughes.   


For further information contact:

Deirdre Connolly, Edelman (085 2449804)

Notes to the editor

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 2018 survey was conducted from October 10th to October 15th 2018 and the results presented here are based on 206 completed responses