Business sentiment survey hints at easing pace of growth and major concerns on ‘Brexit’

Jul 15, 2015

Summer 2015 KBC Bank Ireland / Chartered Accountants Ireland Business Sentiment Survey

Main points:

  • Slower activity growth and increased global uncertainty weighs on business confidence
  • Survey also shows jobs growth reaching fastest pace in nine years. So, upturn still solid
  • Costs starting to increase particularly in relation to payrolls
  • UK exit from EU would have a marked negative effect on Irish business
  • Uncertainty, exchange rate volatility and higher ‘red tape’ costs all influential in the event of UK exit  
  • Business favours modest rather than major stimulus in Budget 2016

Irish Business sentiment weakened in the second quarter of 2015 as output growth easedand uncertainty about the global economic backdrop increased. The change in thinking was particularly marked in more externally focussed sectors such as manufacturing but there was also some pullback in expectations in construction as companies struggle to assess the likely momentum in recovery in this area.

The KBC Bank Ireland / Chartered Accountants Ireland business sentiment index declined to 123.1 in the second quarter of 2015 from 127.7 in the previous quarter. The nature of the survey means that it is intended to capture changes in the business climate. So, the summer survey points towards a further healthy expansion in Irish business activity in the past three months but the pull-back in the index hints that business conditions have not improved as much as had been envisaged.

The survey also hints at a measure of concern emerging in relation to cost pressures. Moreover, increased uncertainty of late in relation to developments in Greece and China as well as increased focus on the UK’s position within the EU may be weighing on hopes for a ‘normal’ recovery.

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

“The summer business sentiment survey suggests that the Irish economy is doing well and companies are continuing to increase output but it also hints that the pace of growth may have eased slightly of late. Increased global uncertainty and particularly worrying headlines on Greece and China also seem to be injecting a little more caution into sentiment. Irish business is still moving solidly forward but the survey implies the steps are a little more careful of late.

“While output growth may be easing slightly, it continues at a pace that entails notable jobs growth. The most encouraging aspect of the summer survey is evidence of a further strengthening of the Irish jobs market. Some 42% of companies say they have increased their payrolls in the past three months, the highest number since 2006 while just 9% have reduced employment, the lowest number in survey’s history. So, companies are stepping up hiring as the recovery seems to be entering a more mature phase.”

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

“Companies are reporting some increased pressure on pay and hiring costs of late. However, there is little evidence of higher import costs in the wake of the weaker Euro on currency markets. This likely reflects the lack of any major global inflationary pressures at present. In turn, this is consistent with responses indicating companies are finding it hard or impossible to pass on higher input costs to their selling prices.  

“Some 79% of companies surveyed think the exit of the UK from the EU would have an adverse impact on the Irish economy with the majority of these judging the impact likely to be ‘strongly negative’.  As many as 40% of firms see a direct negative impact on their business in the event of ‘Brexit’ through a variety of channels with weaker activity because of elevated uncertainty, increased exchange rate volatility and a greater amount of ‘red tape’ all weighing on Irish business conditions.” 

Full survey results are available here.

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 2015 survey was conducted between 25 June and 6 July and the results presented are based on 309 completed responses. 

For further information contact:

Austin Hughes, Chief Economist, KBC Bank Ireland         

T: 01 664 6889 / 087-6696972

Brendan O’Hora, Director, Communications and Marketing, Chartered Accountants Ireland                      

T: 01 6377298 / 086-2432428

Mark Leech, Gibney Communications

T: 01 661 0402 / 087-9053679