Surveys offer a glimmer of hope for economy

PRONOUNCEMENTS on the economy this week were mixed, but some offered a glimmer of hope and two that focused on the indigenous sector of industry were optimistic about the future.

ISME’s third quarterly business trend survey showed business confidence improving for the second consecutive quarter.

In a second survey, carried out by Irish software group Big Red Book among 300 firms, the outlook was also upbeat on the future.

Given the economic depression, which will see economic activity in this country dip by 14% from peak to trough by the end of 2010, the results were hopeful considering the level of correction taking place.

Both surveys showed firms struggling to pay on time, while the Big Red Book findings surprisingly showed that funding from banks was not a predominant theme.

ISME was not over-enthusiastic about the shift to a more positive mood among the 500 firms taking part in its survey.

Its quarterly trends survey for 2009 confirmed the business environment for SMEs “continues to be extremely tough, with employment continuing to deteriorate, sales extremely weak and profits and revenue under sustained pressure.”

But business optimism continues to improve. There has been an increase in investment, and export values have rebounded for the second quarter in succession.

It noted too that sterling still remains a major threat.

Hopefully, the sterling issue will recede when it becomes more obvious that the British economy in on the move back to growth.

That could take longer than anticipated as British manufacturing output shrank 1.9% during August alone. That statistic stunned economists who had predicted a rise and, as the reversal cast further doubt on the potential for sustainable recovery, sterling fell as investors moved to safer havens.

Economists still hope the August figure was a glitch and that the expectation of a return to growth by the end of this year will happen in the last quarter.

Ulster Bank’s Simon Barry is of the view that sterling will recover as the economy picks up, adding that fears that the euro would go above 95p are overdone.

It failed to breach the 95p mark in either January or March, two periods when the currency was under particular pressure.

Barry has been bullish on sterling for some time and said when Britain’s recovery pattern started to look more secure, sterling would start to gain, which will be good news for Irish business in general.

One thing that looks pretty certain is that eurozone economic weakness will ensure that interest rates stay on hold well into next year.

Most now think there will be no shift upwards from the current historic lows until the ECB starts to get edgy about inflation.

Watchers detected a slight change in tone from the ECB after Thursday’s meeting that left rates unchanged at 1% where they have been since May 7, 2009 – the lowest in the ECB’s history.

This week the Central Bank, when asked what business could expect next year or what the economy might feel like, pointed to the Bord Snip report which has highlighted where €5.3 billion in cuts could be made next year. Top officials at the bank, confronted with the hard landing they said would never come, were not is cheery mood and dismissed calls for an extension beyond 2013 to get our national debt back in order.

The bottom line for the bank is that the structural deficit is huge and any further moves to try to delay the correction would drive interest rates up without any intervention from the ECB.

We have to bite the bullet and take the pain, it said, but with a bit of luck, growth in 2011 would be higher than 1%.