Domestic firms’ confidence grows

There has been a significant improvement in confidence among Irish domestic companies about the prospects for future growth, according to Ibec’s Business Sentiment Report.

Confidence in the overall business environment improved marginally, from -6 to -5, over the second quarter of the year compared to the first quarter.

However, the three-month outlook came in at +2 compared with -4 in the first quarter of the year. This is the first time the outlook has recorded a positive reading since the survey began at the start of 2009.

Much of the improved sentiment stems from increased confidence among domestic firms. The index for non-exporting, domestically focused companies reached +17 compared with +3 in the first quarter of the year.

“At last we are seeing firm signs of a domestic recovery. While the environment remains challenging, companies are looking to the future with a increasing sense of optimism,” said Ibec chief economist Fergal O’Brien.

“Over recent months we have started to see the economy re-balance, with the domestic sector contributing to growth. The survey suggests this trend will continue.”

Since the collapse of the banking system in 2008, the domestic economy has struggled with the lack of credit and household deleveraging.

The export sector has helped the overall economy to grow, but there has to be a pick-up in domestic activity to put a dent in the high unemployment rate.

The Ibec survey found that the employment index climbed one notch to +5 in the second quarter. Domestic companies reported the most significant improvement in their outlook, which jumped from -9 to +1.

However, most of these companies said they are unlikely to reduce staff numbers in the next three months whereas 27% of exporting firms said they planned to increase employee numbers of the next three months.

There was an increase in most components of the survey, including the outlook for profitability, domestic sales, order books, and export sales.

“To support the recovery, the Government should abandon plans to increase taxes in the upcoming budget. The economy and workers are already taxed enough. Any further rises would undermine job creation and make taking up a job less attractive,” Mr O’Brien said.

“It is vital that tentative signs of a domestic recovery are not undermined by tax increases. Any further tax hikes would take money out of the economy, make work less attractive, and undermine the ability of companies to invest and create new jobs.”

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