Ireland's business confidence plummets as firms grapple with skyrocketing energy and labour costs

Businesses fear infrastructure, energy, and labour costs will stifle growth

Only half of businesses forecase a rise in profits this year.

Growing numbers of businesses in Ireland are growing concerned about the infrastructure challenges in the country in the areas of housing, transport and utilities

Two-thirds of businesses have expressed concern over the pace of developments in the country, fearing the impact on overall growth as they also contend with rising energy prices.

The quarterly Grant Thornton International Business Report (IBR), which taps into the mood of 10,000 mid-market companies across 28 countries, including 102 in Ireland, also found that businesses are becoming increasingly concerned about energy and labour costs.

Attitudes to energy costs have seen a massive swing over the past 15 months, with approximately a quarter of firms highlighting them as a concern at the end of 2024, but now just over half of Irish companies surveyed see them as a key constraint to business growth.

Similar levels of pessimism are evident in relation to labour costs, with only one in four flagging them as a constraint 12 months ago, whereas 43% cited them as a key challenge to financial performance in the latest research. This is further compounded by a lack of skilled workers with almost half of businesses surveyed singled it out as a negative factor, rising steadily from 43% in the last quarter.

"Confidence among Irish businesses is clearly under pressure, reflected by a perfect storm of structural and inflationary challenges that have been building over time," Grant Thornton's Global Head of Industry Martin Shanahan said. "Infrastructure deficits across housing, transport and utilities are now acting as a tangible constraint on growth, while the sharp rise in energy costs over the past year has added a further layer of uncertainty for many firms.

The survey shows the pressures are feeding through to a marked deterioration in business outlook. A year ago, 80% of companies surveyed expected an increase in profitability over the next twelve months, but one year on, these expectations have come crashing down with only half forecasting a rise in profits over the same period. Over three-quarters  of Irish firms expected to increase salaries, but this has fallen to approximately two-thirds a year later. Less than one in five companies surveyed are forecasting a growth in exports over the next twelve months.

“These are not short-term issues, they go to the heart of Ireland’s competitiveness," Mr Shanhan said. "Even more concerning in this respect is that the latest research was undertaken prior to the conflict in Iran and the aftereffects that Irish businesses are having to grapple with now.

“Labour costs and skills shortages are making it more difficult for companies to expand. Ireland has long benefited from a strong talent proposition, but the latest IBR findings underline the need for continued investment in skills development and producing a pipeline of talent with the right skillsets from our education system to sustain that advantage.

“What is particularly striking from our latest study is the shift in sentiment around profitability and growth. Attitudes have shifted significantly over the past 12 months, with fewer firms anticipating profit increases, lower appetite for salary expansion, and subdued export outlooks. While the resilience of this cohort of companies should not be underestimated, these results point to the need for a renewed focus on competitiveness, infrastructure delivery and cost management to support sustainable business growth in the period ahead.”