Business sentiment hits nine-year low

According to an AIB survey, a net 56% of Irish firms are anticipating higher average staff costs this year, which is well above the global average.

Business sentiment hits nine-year low

Growth expectations amongst Irish companies have hit a nine-year low, with wage costs and skills shortages joining old reliables such as Brexit and global trade tensions on the list of concerns.

Manufacturing firms' expectations for growth haven't been as low for a full decade, with goods producers' confidence levels weaker only during the height of the global financial crisis.

According to an AIB survey, a net 56% of Irish firms are anticipating higher average staff costs this year, which is well above the global average.

Firms are more confident regarding employment activity than they were, with the net balance for hiring in Ireland the joint-highest of all countries for which combined manufacturing and services data are available. However pay is widely expected to be a key driver of higher cost burdens in the year ahead.

"The downward trend in growth expectations continues, particularly in the manufacturing sector, driven by uncertainty on the final outcome of Brexit and slowing economic growth," said Hilary Gormley, head of business banking at AIB.

Although sentiment is still positive overall, it is the lowest it’s been for nine years. While there is optimism in Irish businesses in relation to employment and profitability growth expectations in comparison to the February survey, with confidence around increasing workloads and job creation, cost pressures will continue to be burdensome in the year ahead.

Ms Gormley said sentiment around business activity in Ireland is actually currently higher than in the rest of the eurozone.

"However, the ongoing ambiguity regarding the final outcome of Brexit negotiations is driving uncertainty," she said.

"As the economy steadily moves towards full employment, wage pressures are likely to intensify, and the recruitment and retention of workers will become an increasingly significant challenge for employers and will act as a constraint on economic growth," Aviva Ireland chief economist Jim Power said last week.

"Although wages will rise more strongly this year, rising house prices and rents will continue to soak up household disposable income," he said.

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