Business sector activity levels rise

THERE have been some signs of improvement in the business sector this year with activity levels increasing slightly and lay-offs easing back.

A stronger improvement in activity is expected in the coming months but close to three-quarters of firms are saying the rise in European Central Bank (ECB) rates will have a negative impact on their business.

The KBC/Chartered Accountants Ireland business sentiment survey, which reflects the views of chartered accountants working in senior positions, also found that costs are rising sharply.

Chief economist with KBC Austin Hughes said the survey suggests the Irish jobs market is showing both an increase in new hiring and some easing in lay-offs and this is expected to translate into a net increase in employment in the coming months.

“The spring 2011 survey also confirms that Irish job market conditions remain fairly weak and will be slow to improve but these results suggest the worst news on jobs is behind us,” he said.

Mr Hughes added that new hiring would remain constrained if upward pressure on costs persists.

“The survey indicates costs are under substantial upward pressure, largely because of higher commodity prices. Firms suggest they will have to absorb much of the rise in costs rather than pass them on to customers. Faced with additional pressures on costs, companies are unlikely to aggressively ramp up new hiring,” he said.

The survey, which covered the first three months of the year, also suggests that companies think the new Programme for Government will have a positive but modest impact on activity.

President of Chartered Accountants Ireland Paul O’Connor claimed the business sector fully understands the constraints the Government faces.

He said: “So, it is no surprise that a renegotiation of the EU/IMF deal is seen as beneficial to the Irish economy. However, there are also doubts that the Government’s budget deficit targets for 2015 can be met.

“Getting the balance right between imposing austerity and encouraging enterprise is a very difficult task but the survey suggests that austerity alone can’t return the Irish economy to growth,” Mr O’Connor said.

Businesses which focused on domestic spending are expected to continue to face significant obstacles on the road to recovery.

“For this reason we are unlikely to see any dramatic improvement in Ireland’s economic fortunes anytime soon. Instead, the spring survey suggests a gradual, if uneven, upturn is likely to become more clearly established as 2011 progresses,” said Mr O’Connor.