Firms ‘facing tougher times’

THE going will get tough for Irish business in the months ahead, Ulster Bank warned yesterday.

The bank’s latest economic assessment predicted a stronger euro making life harder for exporters, higher interest rates squeezing cashflows by increasing debt repayments and slower growth hurting demand.

Ulster Bank financial markets strategist Niall Dunne said the US dollar was set to slide towards the end of the year and that the American economy’s recent strong performance was not guaranteed to continue.

He also predicted a 0.25% hike in eurozone interest rates over the next six months.

“For the past six months, America has led something of a fairytale existence - despite rising deficits, soaring energy costs and a lacklustre labour market, the US economy came through its soft patch and is currently growing at a faster rate than normal,” he said.

But he added America was at risk of a downturn in consumer confidence triggered by high oil prices.

Such a downturn would hurt economic growth and have negative implications for the dollar.

Mr Dunne also warned a continued rise in energy costs would worsen America’s already-severe trade deficit.

He said the dollar could also come under pressure from a recent policy change by the Chinese authorities, that could in turn lead to reduced demand for the greenback.

“We see the euro rising to 1.32 against the dollar by year end and we would caution businesses with dollar receivables to consider hedging at current exchange rates,” he said.

Ulster’s latest report also predicted a euro/sterling exchange rate of 72p by the start of 2006.

“The British economy is comparable to the brick house built by the third little pig.

“The UK is facing some headwinds - there are some wolves at the door - but there’s no danger of growth being blown away.

“However, if a slowdown in consumer spending becomes entrenched, if unemployment continues to edge higher, and if property price inflation continues to decelerate, then we see UK interest rates falling, contrary to current market expectations,” he said.