Business conditions ‘have steadied’

BUSINESS conditions at the end of this year have steadied, but experiences vary significantly depending on the sector of the economy involved.

According to the Winter 2010 KBC Bank/Chartered Accountants Ireland Business Sentiment Survey, the gap between improving “traded” sectors and weakening domestic demand is increasing.

Overall, while a slight improvement in the economy is projected in early 2011, the survey warns that divergences between the export and the local domestic sectors of the economy are set to widen further.

Employment fell modestly with losses kept low as declining business costs intensified during the quarter.

Overall the respondents judged that the €6 billion budget cuts to be about right, but the majority felt tax increases went too far.

The Government economic forecasts were seen as “slightly” too optimistic but the majority feel the four-year plan provides a reasonable framework to get the economy back to normal functioning.

Up to 61% of businesses feel EU/IMF assistance improves Irish economic outlook, while 16% think it worsens prospects.

Just a slender majority of 56% felt that Ireland’s membership of the euro has helped economy through crisis while 30% disagree.

And the survey found that the business community was split on whether the ECB, for its part, had helped or hurt the economy.

Paul O’Connor, president of Chartered Accountants Ireland, said that the improving global recovery was “helping many firms make significant gains but similar numbers of companies, mainly those selling to Irish consumers or in construction, report a further weakening in sales of late”.

That divergence was likely to increase in early 2011, he added.

Austin Hughes, chief economist at KBC Bank Ireland, said the subdued activity made the fall in employment almost inevitable. While the pace of job losses has eased slightly and there has also been some improvement in new hirings, it is hard to say how the jobs market will turn out in 2011. Mr Hughes added that “continuing uncertainty about the future and the fact that growth is strongest in less employment intensive industries mean there appears little prospect of a marked turnaround in Ireland’s jobs market anytime soon.”

He suggested a cautious approach was also reflected in a further reduction in business costs of late.

Over time, the continuing fall in business costs “will make Ireland a more attractive place to grow employment”.

Mr O’Connor added that “with the international outlook reasonably promising, export focused firms should see further growth but large budget cutbacks mean domestic spending could weaken further”.