Tougher operating conditions to come for Irish business, report warns

IRISH companies can expect a tougher operating environment over the coming years but Ireland will remain a good place to do business.

A new report from credit insurance firm Euler Hermes, which is part of Allianz, forecasts a largely positive outlook for Irish businesses across sectors but said many businesses that have benefited from the success of the Irish economy would struggle under less favourable conditions.

The report said the Irish property boom may have allowed under-performing companies to make money they normally wouldn’t have been able to.

General manager of Euler Hermes, Paul Farrar, said: “There is a concern that businesses across a number of sectors are struggling operationally, but continuing to benefit from favourable economic conditions.

“Having bought commercial land a decade or more ago, some businesses are now holding substantial assets. This enables borrowing to fund performance that under less forgiving economic circumstances would either be much more costly or simply not possible.

“When times have been so good for so long it’s easy to focus on growth, but businesses can’t bank on high levels of growth going on indefinitely.

“We are starting to see some twinges in global markets. Combine that with the natural ebb and flow of any economy and there is a clear signal that businesses need to be prepared to face a tougher environment.”

The report expects real GDP growth in Ireland to be 5% this year and said high rates of personal debt, arising chiefly from property, leave home owners vulnerable to shocks.

Mr Farrar added that in order to maintain the momentum of the Celtic Tiger years, Irish companies need to focus on fostering innovation, increasing productivity and mitigating the risks of insolvency.

“And with the US economy facing a slowdown, businesses should also be looking to opportunities in emerging markets,” he said.

The report also said that Ireland’s lack of domestic natural resources, coupled with the concentration of output in certain industries, leaves it more sensitive to oil and commodity price shifts.

Despite expectations of a mild slowdown this year, the report finds that overall the environment remains conducive for business and that Ireland’s ties to Europe and the US will assure its position for some time.