Business sentiment survey: Firms are less upbeat

Political uncertainty in the run-up to the formation of the new minority Government dented confidence in the economy and caused a slowdown in the pace of economic growth, new research suggests.

While the economy continued to grow at a reasonably strong rate in the opening weeks of May, increased uncertainty and concerns around global demand weighed on the mood of the corporate sector in Ireland.

The KBC Ireland/Chartered Accountants Ireland business sentiment survey shows a “clear easing in the strength and spread of Irish economic growth” since the turn of the year.

KBC Ireland chief economist Austin Hughes said the results of the survey pointed towards a number of economic clouds on the horizon.

“Although activity and jobs are growing, Irish companies report a clear increase in downside risks to their business volumes of late.

"A weakening of global growth is widely seen as the main threat but the possibility of Brexit and domestic political stability are also regarded as key issues.

“The range of concerns raised in the survey highlights the variety of clouds in the economic sky at present and the diversity of the business circumstances of individual companies,” Mr Hughes said.

The sentiment index fell to 117.7 in the first quarter of 2016 compared to a nine-year high of 131.1 in the final months of 2015.

Despite sentiment being at an historic high as 2015 came to an end, the drop-off nonetheless implies a notable easing in the forward momentum of the economy so far this year.

The factors identified by Mr Hughes contributed to 34% of business leaders seeing increased downside risks to their business compared to just 3% which saw risk easing.

Half of respondents saw a slowdown in global demand as the most significant risk while 37% cited Brexit as a key concern across numerous industries.

That said, just 4% of respondents said the uncertainty around Brexit had caused them to postpone, scale back or cancel activities.

“Just under half of the companies surveyed are unsure or not focussed on the potential impact of Brexit on their business but 46% are now focused on the risks it may pose to them while 10% are considering possible opportunities it might present.

"However, the survey hints at a lack of readiness on the part of Irish firms in the event that the UK leaves the EU. Only 26% of companies say they have taken action such as seeking advice or examining alternative business relationships and only 5% of firms have adjusted their output or hiring in response to the possibility of Brexit,” Mr Hughes said.


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