Irish Business Activity Still Solid But Optimism Notably Dented

Aug 18, 2016

Pat Costello Austin Hughes

 

 

 

 

 

 

 

 

Chartered Accountants Ireland / KBC Bank Business Sentiment Survey, Summer 2016  

• Activity growth across Irish companies remained robust in past three months as did hiring
• Outlook for business still healthy but expectations clearly scaled back
• Confidence in broader Irish economy sharply downgraded
• Brexit seen as key risk but not the only cloud in economic sky
• Some 80% of companies now considering some implication of Brexit for their business
• Sterling weakness the main risk but one in ten firms looking at potential relocation into or out of Ireland

While business activity weakened only marginally, Irish Business sentiment worsened markedly in the past three months. Concerns regarding Brexit, coupled with broader uncertainties about global economic prospects, caused a marked downgrading of the general business climate which, in turn, prompted companies to take a more cautious approach in terms of their own future output and hiring.  

The KBC Bank/Chartered Accountants Ireland Business Sentiment Index dropped to 99.9 in the past three months from 117.7 in the spring quarter.  This represents the sharpest quarterly fall since the third quarter of 2010 and brought the index back to its lowest level in three and a half years. As such, it clearly signals a marked change in the mood of Irish business of late. 

On the basis of the past relationship between the business sentiment index and Irish GDP, the most recent survey still seems to be pointing towards reasonably solid economic growth in 2016. However, it signals a clear easing in the pace of growth. The latest sentiment reading appears consistent with GDP growth of around 3.5-4% at present.

The range of survey responses to questions about companies’ immediate operating environments clearly points to some cooling in the business climate of late. While the change in companies’ own circumstances is reasonably measured, the survey suggests an altogether more substantial mark-down of the outlook for the broader Irish economy. Respondents have become notably less optimistic about Irish economic prospects of late.

Brexit is now regarded as the principal risk to Irish based companies’ prospects, cited as such by 40% of respondents. However, it is not seen as the only cloud in the economic sky. Slowing global demand is still widely seen as a significant concern. Perhaps more surprising is the continuing importance attached to domestic political uncertainty which was cited by 20% of respondents.    

Not surprisingly, the aspect of Brexit currently regarded as the main issue for companies is the weakness of Sterling. This is to be expected given both the immediacy of such effects and the extent of recent currency movements. However, companies indicated a wide range of considerations from administrative difficulties in trading with the UK to potential relocation of activities out of Ireland.

Commenting on the results, Chartered Accountants Ireland Chief Executive Pat Costello said:
“The drop in business sentiment to its weakest level in three and a half years should be seen as a broadly based recognition of increased risks to Irish economic prospects rather than a sign of panic or any dramatic deterioration in current conditions. Notably increased uncertainty of late and the particular threats posed by Brexit have prompted companies to downgrade expectations for the general economic environment but they continue to signal healthy growth in their own activities.”

Austin Hughes, Chief Economist, KBC Bank Ireland, who carried out the analysis, said:
“The summer survey shows firms reporting continuing strength in their business volumes and hiring of late and forward-looking responses suggest this should continue, albeit at a more modest pace. On the basis of historic trends, the business sentiment survey appears consistent with a growth rate in Irish GDP of about 3.5-4% at present.” 

Pat Costello also said:

“In the wake of the recent UK referendum, as many as 80% of companies that responded to the survey indicated some current focus on the implications of Brexit for their activities. This emphasises that the consequences of the UK’s exit from the EU will be widely felt right across Irish business rather than confined to some specific sectors. Some 13% of firms have already altered their activities or business plans but the survey suggests a larger recalibration of Irish business is in prospect.”

Commenting further, Austin Hughes said:

“It is scarcely surprising that Sterling weakness was flagged as the main concern and, with poorer UK economic conditions also featuring prominently, it is clear that near term risks predominate. While 50% of the companies surveyed were focussed on the threats posed by Brexit to their business, 20% indicated they were primarily focussed on opportunities it might present.  In some instances, this may reflect the necessity to adapt in order to survive but these results emphasise the need to consider the many dimensions to the impact of Brexit on Irish business, some of which may be positive.”     

The KBC Bank Ireland / Chartered Accountants Ireland Business Sentiment Survey reflects the view of Cchartered Aaccountants working in senior positions (CEOs, MDs and FDs) in Ireland’s leading companies.  The sSummer 2016 survey was conducted in from 28th July to 11th August 2016 and the results presented are based on 321 completed responses.

Read the full report here.

Ends.

Reference:

Bryan Rankin, Marketing Manager, Chartered Accountants Ireland T: +353 1 637 7268

Sinéad Healy, Gibney Communications, 01 661 0402 / 086 061 2441