Firms more cautious over economy

Companies have become more cautious about the broader economy, despite continuing to increase their activity and employment levels.

The latest KBC Bank Ireland/Chartered Accountants Ireland business sentiment index — covering winter 2014/’15 — shows a reading of 124.3, down marginally from 124.8 in the previous quarter.

While hinting at no real change to sentiment, the survey actually throws up a mixed bag of feelings amongst business owners.

Four out of five firms continue to see themselves in recovery mode and roughly half expect to boost capacity this year. But while two thirds also expect to raise pay levels, most are set to only do so modestly. Overall, there is the feeling that while growth continues, it is at a relatively modest pace and could be hampered by macro-economic sluggishness.

“Irish business turned the year on a very strong note, with activity levels at their strongest since 2006 and employment trends improving significantly,” noted CAI chief executive, Pat Costello.

“But companies sounded a slightly more cautious note about the general economic climate, perhaps reflecting greater global nervousness as well as some increased domestic political uncertainty of late. These circumstances, as well as the legacy of the recent crisis, mean that while a solid recovery is under way, it is not simply a case of onwards and upwards for all businesses,” he added.

According to Austin Hughes, chief economist at KBC, the survey suggests the broader recovery — while still under way — could be slower than initially expected.

“The pick-up in activity over end-year was particularly notable in businesses focused on domestic spending, such as construction and consumer activities. Overall, recovery is clearly broadening, but the survey suggests that the overall rate of growth may be easing somewhat from the break-neck speed suggested by GDP data for the first half of 2014. So, this year may see improvements across a broader range, but possibly at a more modest pace than last year.”

Mr Costello said: “Four out of five companies consider themselves to be at some stage of a recovery cycle. So, roughly half expect to increase either output capacity in 2015, by adding to staff or infrastructure, but nearly one in 10 are still making cutbacks of one form or another. This suggests the recovery is still quite uneven.”

“Some assistance is expected from lower oil prices, with almost half of firms envisaging a modest positive impact on their businesses.”