Irish Business Confidence at New Nine High

Jan 19, 2016
Winter 2015 KBC Bank Ireland/Chartered Accountants Ireland Business Sentiment Survey

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

  • Business volumes and employment show continued growth at end 2015.
  • Domestic activity accelerates while manufacturing growth eases.
  • Domestic costs continue to build; increases across widest range of firms since 2008.
  • Output growth among Irish based companies consistent with 7% GDP growth in 2015.
  • Wages to rise in 8 out of 10 companies in 2016 with just over half of pay rises less than 2%.
  • 54% of firms don’t see direct impact on their business from ‘Brexit’ but 42% fear negative effects and only 4% see positive consequences.
  • Increased economic uncertainty cited as key risk from ‘Brexit’ by 67% of firms with greater currency fluctuations ( 54%) and increased costs of doing business with UK (38%) also problematic

A combination of stronger activity levels at reporting companies and increasing optimism about the broader Irish economy meant Irish business sentiment reached a new nine year high in the final quarter of 2015. The improvement in the sentiment index in the last three months was relatively modest but fairly broadly based. This hints that the economic recovery continues to spread further across the various sectors of the Irish economy but the pace of economy-wide growth appears to be stabilising rather than continuing to build.

The KBC Bank Ireland/Chartered Accountants business sentiment index increased to 131.1 in the final quarter of 2015 from 130.8 in the previous quarter. While this was a relatively modest gain, it was sufficient to push the index to the highest level since the survey began in 2006.  

Activity levels across firms operating in the Irish economy continued to increase as 2015 drew to a close, however, the pace of growth was only fractionally ahead of the previous quarter. With two thirds of companies signalling increased business volumes and less than 6% indicating weaker activity, the survey suggests a very broadly based upswing is now evident across Irish based companies.

The most notable development through recent quarters is the increased positivity of businesses focussed on the domestic economy. The survey suggests the emerging recovery in domestic demand is spreading markedly. In contrast, output increases in manufacturing companies- while still very clear-cut- were less widespread than previously reported and one potentially concerning aspect of the 4th quarter survey is a further uptick in the number of firms reporting an increase in costs in the past three months.

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

“Irish based companies report continuing increases in activity levels and employment at the turn of the year. With similar gains expected in early 2016, business sentiment has risen to a new nine year high. Significantly, companies are reporting increases in their business volumes in 2015 that broadly tally with current estimates suggesting Irish GDP grew by close to 7%. So, the sentiment survey suggests that from corporate Ireland’s perspective, recovery is now both strong and broadly based.”

“More than half of the companies surveyed indicated that pay was the area of their costs showing the clearest upward trend of late. Roughly 8 out of 10 companies expect to increase average pay rates in 2016. Slightly over half of these see average pay rising by less than 2% with the vast bulk of the remainder predicting increases of between 2 and 5%.”        

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

“A further uptick in Irish business costs in this survey could reflect difficulties some companies might have in sharply scaling up their activity levels. It may also reflect a correction after a very sharp fall in costs through the downturn as well as possibly owing something to the impact of currency movements on import costs. It is important not to be alarmist about this development and businesses surveyed are confident about their future growth. However, in a world of very low inflation, a rising trend in Irish costs needs to be monitored closely.”

“The survey found broadly based concerns about the impact of a possible UK exit from the EU. Some 67% of firms fear a harmful rise in economic uncertainty while greater currency volatility and an increase in the cost of doing business with the UK are also significant worries. Although just over half of businesses surveyed felt there would be no direct impact on their operations, some 42% envisaged some adverse effect from ‘Brexit’ while only 4% anticipated positive consequences.”

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 Winter 2015 survey was conducted in the first business week of January 2016 and the results presented are based on 440 completed responses.

Ends.

19th January 2016

For reference:

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

Austin Hughes, KBC Bank, 087 669 6977

Read the full report here.