Irish business sentiment slips back in early 2016

May 19, 2016








Spring 2016 KBC Bank Ireland/Chartered Accountants Ireland Business Sentiment Survey

  • Firms report modest but broadly based easing in pace of business growth of late
  • Jobs growth continuing but hiring plans scaled back slightly
  • Easing in external costs but further cost increases in domestically focussed firms
  • Views on Irish economy still positive but less bullish than previously seen
  • Global slowdown seen as key threat to Irish business prospects
  • Brexit and domestic political stability also seen as key issues
  • Only one in four companies has taken any action in anticipation of Brexit

Irish business sentiment weakened notably in the first quarter of 2016 from the nine year high recorded in the previous quarter. This pull-back stemmed from some easing in the pace of output growth and, more importantly, from a notably increased level of uncertainty which weighed on the mood of the corporate sector in Ireland.

It should be emphasised that this reading still suggests the Irish economy is growing at a reasonably healthy pace at present. More importantly, however, the survey suggests there has been a clear easing in the strength and spread of Irish economic growth since the turn of the year.  

The KBC Bank/Chartered Accountants Ireland business sentiment index fell to 117.7 in the first quarter of 2016 from 131.1 in the final three months of 2015. While the previous reading was the highest in the nine years of the survey, the latest is the weakest since the autumn of 2013. Recent years have seen the sentiment index follow a reasonably similar path to the trend in Irish GDP.

This comparison emphasises that the drop in the sentiment index hints at a drop in the pace of Irish economic growth of late as distinct from a dramatic weakening in economic conditions. Nonetheless, the index implies there has been a notable easing in the forward momentum of the Irish economy in early 2016.

The KBC Bank/Chartered Accountants Ireland business sentiment survey also asked a number of additional questions on topical issues, including whether firms felt that downside risks to their companies’ activities had changed notably of late. While roughly 60% of respondents indicated there had been no change to their businesses, a substantial 34% noted an increased downside risk to their business of late while just 3% suggested that downside risks had eased.  

Irish based firms were then asked to indicate what they saw as the biggest risk facing their businesses at present. Reflecting the importance of exports to a broad swathe of Irish companies, it is not entirely surprising that weaker global demand emerged as the most significant threat and was cited by 49% of respondents.

The prominence attached to ‘Brexit’ –cited as a key risk by 37% of firms, as a key concern in relation to their prospects is to be expected and a notable feature of the responses was their consistency across sectors. That said, our survey responses suggest it has not prompted any dramatic shift in business behaviour. Within the range of actions taken by companies ahead of the UK referendum, some 4% of respondents indicated the prospect of Brexit had caused them to postpone, scale back or cancel activities while 1% of firms had increased activities. At the margin, these actions would have some limited impact on overall activity levels but it seems that the most notable consequence of the looming UK referendum is to feed into a more broadly based mood of caution of late. So, it seems that many companies have yet to fully assess what Brexit might mean specifically for their business.  

Domestic political uncertainty also featured as a significant issue for many Irish businesses, mentioned by some 32% of respondents and this finding is understandable given that the survey was taken between the 6th and 12th of May, just before a new Government was confirmed.

Commenting on the results, Chartered Accountants Ireland Chief Executive Pat Costello said:

“The sentiment survey hints at a clear easing in the pace of growth in business activity levels across Irish based firms in early 2016. While output and employment are still increasing at a healthy rate, the scale and spread of those gains is altogether more modest than the trend seen through the past year or two.  This is associated with a notably more cautious assessment of the general economic outlook as an increasingly uncertain global environment weighs on business sentiment.”   

“The survey suggests business costs have eased somewhat of late particularly for internationally facing firms but continuing if modest increases in the costs of domestic focussed companies underlines the importance of ensuring that the recovery in domestic spending doesn’t prompt any threatening loss of competitiveness.”

Austin Hughes, Chief Economist, KBC Bank Ireland, who carried out the analysis, said:

“Although activity and jobs are growing, Irish companies report a clear increase in downside risks to their business volumes of late. A weakening of global growth is widely seen as the main threat but the possibility of Brexit and domestic political stability are also regarded as key issues. The range of concerns raised in the survey highlights the variety of clouds in the economic sky at present and the diversity of the business circumstances of individual companies.”   

“Just under half of the companies surveyed are unsure or not focussed on the potential impact of Brexit on their businesses but 46% are now focussed on the risks it may pose to them while 10% are considering possible opportunities it might present. However, the survey hints at a lack of readiness on the part of Irish firms in the event that the UK leaves the EU, perhaps reflecting the many uncertainties involved. Only 26% of companies say they have taken action such as seeking advice or examining alternative business relationships and only 5% of firms have adjusted their output or hiring in response to the possibility of Brexit.”     

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 2016 survey was conducted in from 6 to 12 May 2016 and the results presented are based on 325 completed responses.


For reference:

Karen Jones, Gibney Communications, 01 661 0402 / 086 866 4501

Austin Hughes, KBC Bank, 087 669 6977

Read the full report here.