Credit difficulties for 20% of firms

ONE in five firms say they are finding it increasingly difficult to get credit from banks.

Also a sharp drop in costs and signs of improvement from Britain and the US leads Irish firms to believe the worst of the economic downturn could be over.

The KBC summer business sentiment survey found that despite optimism returning to the corporate world trading conditions will remain tough for years to come for Irish firms.

More than half of Irish businesses surveyed have cut jobs in the last three months as they prepare for tougher times ahead.

KBC chief economist, Austin Hughes said that firms are shedding jobs because they feel that output won’t return to boom type levels in the foreseeable future.

“They have acted aggressively to reduce their workforce to meet weaker projected demand. This process appears to be well advanced although it is not complete.

“One slightly encouraging note is that they expect to cut fewer jobs in the coming quarter,” he said.

Communications director with the Institute of Chartered Accountants in Ireland, Ronan O’Brien, said that Irish businesses expect to “bounce along the bottom” rather than experience any marked recovery between now and the end of the year.

“Businesses are notably less pessimistic about the broad economic outlook than they were three months ago. In part, this reflects tentative signs of an improvement in the US and Britain.

“A sharp drop in costs has also helped. This probably owes a great deal to major adjustments made by firms themselves. It could also be the case that companies are detecting a little less fatalism about the future course of economic policy making.”

According to the survey, demand for credit is likely to remain weak as firms continue to be cautious about capital spending with two out of three businesses not planning to borrow more in the next 12 months.

Mr Hughes said: “The vast bulk of companies have not seen any marked change in access to lending of late and a very small number reported an improvement.

“Businesses in particularly hard hit areas such as construction and consumer spending report greater than average problems.”

One in five firms feel the downturn will end within 12 months compared to one in 16 at the time of the spring survey.

Also, four out of five Irish firms think the changed economic climate means getting the Lisbon treaty passed has become more important.