Chartered Accountants Remain Confident on Economy
Author:
Accountancy Ireland
While economic growth may be set to moderate, a key message coming from Chartered Accountants is that there is little evidence of any generalised downturn in business conditions, according to the findings of the IIB / Chartered Accountants Business Index published in June.
The majority of firms reported healthy business levels over the previous three months and expect activity to strengthen in the quarter ending Septemer 2007. While there is greater uncertainty about the general economic outlook, most Irish companies remain confident in their own ability to grow their businesses.
Companies think the main threat posed by higher borrowing costs is the knock-on impact on the cost of living and demands for compensating wage and price increases. The survey finds the key risk to the business climate and to the broader Irish economy is sharply rising costs.
“It is worrying that 3 out of 4 firms reported rising costs in the past three months with virtually no evidence of any easing across any of the main sectors”, says Ronan O’Brien, Director of Communications at the ICAI. “It is even more disturbing that similar numbers see costs continuing to increase in the coming quarter … One in three companies see rising labour costs as the major risk to their business in the year ahead,” Mr O’Brien added.
Business sees the recently elected government as having a key role to play in making the Irish economy more competitive and says more investment in infrastructure should be the key priority.
The main findings of the survey analysed by Austin Hughes, Chief Economist, IIB Bank include:
- While growth in business activity has eased marginally of late, it is still at levels consistent with very healthy growth in the Irish economy as a whole; more than three times as many businesses reported that their activity levels increased in the past 3 months as reported softer conditions.
- Two thirds of Irish companies expect their business levels to increase in the next 3 months.
- Encouraging employment trends reflect the continuing health of business levels with 39% of companies reporting higher employment in the past 3 months compared to 11% indicating a lower headcount. These data suggest the Irish jobs market remains solid and stand in stark contrast to some suggestions that the economy is experiencing a jobs meltdown.
- The key risk to the business climate remains broadly-based cost inflation. Three quarters of firms report costs have increased in the past quarter while only 2% of companies report an easing. Somewhat worryingly, a broadly similar balance expect cost increases to continue in the coming three months.
- Irish business remains notably more concerned about general economic trends than their own company’s prospects. Roughly 40% of businesses have become more pessimistic about the general economic outlook in the past three months, more than twice the number expressing increased optimism. This apparent disjoint between corporate experience and sentiment towards the broader economy suggests business sentiment is responding to a general unease rather than a specific deterioration in the climate in which they operate.
- Rising labour costs are seen as the main risk to the Irish economic outlook with one in three firms citing this as their key concern. About one in four fear a weakening in demand while one in five indicate that higher interest rates are the principal threat. Reflecting persistent strength in many areas, one in ten businesses said that a shortage of skilled workers was the key threat. The spread of concerns suggests there is no single overwhelming negative influence on Irish business at present.
- On balance, Irish businesses are still relatively positive about the longer-term health of the Irish economy although 40% of those surveyed indicated the outlook has become increasingly uncertain. Of the remainder, roughly three times as many suggest they are generally positive about the economy as say that some deterioration has occurred in relation to economic prospects.
- The economic priorities of the incoming government should be fairly straightforward according to the survey results. Some 60% of firms see increased infrastructure investment as the key priority. Lower personal and corporate taxation is cited by 17%. Roughly 10% prioritise the availability of skilled immigrants while 8% say lower stamp duty should be the key priority.
- The key threat from higher interest rates is the knock-on impact on payroll and other costs from a higher cost of living according to 56% of firms. One in four regard the impact on their funding costs as the principal effect while a surprisingly low 20% feel the key influence is through weaker demand. In part, this may reflect the fact that interest rates are rising because of stronger global growth.
- Roughly one in three businesses feels media commentary on the economy has been balanced. 29% think it has been excessively pessimistic and a further 20% regard it as alarmist while 7% feel it has been excessively optimistic.
The IIB Bank / Chartered Accountants Business Sentiment Survey reflects the views of Chartered Accountants working in senior positions (CEOs, MDs and FDs) in Ireland’s leading companies