Businesses 'threading a tightrope' as rising costs sees productivity fall

Figures show a fall of 0.1% in domestic labour productivity in the first three months of 2023, with the foreign sector seeing an 8.2% decline

Mr Coneely also warned of the "concerning" fall in transportation and storage activity, with Chambers Ireland adding that pressures on the sector create longer-term risks for all businesses in Ireland

Staffing and energy pressures are continuing to raise business costs in Ireland and are having adverse effects on productivity which fell in the first quarter of this year, according to the Central Statistics Office.

Figures released on Tuesday show a fall of 0.1% in labour productivity in the domestic sector in the first three months of 2023, with the foreign sector seeing an 8.2% decline in the same period.

Overall, labour productivity across the total economy fell by 3% on the back of a 10.6% fall in the Manufacturing sector, with the administrative and support services sectors also seeing significant decreases. 

However, other sectors saw productivity increase notably, with finance, accommodation and construction rising by 8.9%, 12.5% and 5.1% respectively. 

The CSO also reported a 1.5% increase in multifactor productivity, while the foreign sector dropped by 2.7%. The level of capital services in the Domestic sector declined by 2.3% in the first quarter, with Foreign capital services also falling by 0.8%.

Speaking on the figures, Head of Policy at Chambers Ireland, Shane Coneely warned businesses are "treading a tightrope" when it comes to maintaining productivity in the face of rising operating and labour costs.

“The underlying story for business is better than we had hoped, while productivity in the Domestic sector is down marginally, there was a continued increase in the numbers of hours worked," Mr Coneely continued.

“With unemployment at 4.1% for this period, this increase in labour hours is being met in part by the 100k people who entered the workforce in the previous 12 months."

As overhead and marginal costs continue on an upward trajectory, Mr Coneely said businesses are "clearly trying" to cut costs, as reflected in falling capital investment. However, he warns that this can only be "a short-term measure for firms as underinvestment in capital quickly erodes competitive advantage.”

Mr Coneely also warned of the "concerning" fall in transportation and storage activity, with Chambers Ireland adding that pressures on the sector create longer-term risks for all businesses in Ireland as logistics costs tend to raise factor costs throughout the economy.