Client News > Release
13-07-2010
KBC Bank Ireland/Chartered Accountants Ireland Business Sentiment Survey - Summer 2010
Irish Economy Growing Again as 'Feel Bad' Factor Fades...But 'Feel Good' Still Some Distance Away.
Main Points:
- Business sentiment points towards positive GNP growth in second quarter.
- Increased business activity suggests modest growth is underway.
- Fewer firms expect activity to decline but no great surge expected.
- Manufacturing and business services remain the key drivers of improvement with Construction still suffering.
- Job cuts continue but are far less widespread.
- Irish business notably more optimistic about general economic outlook.
- 69% of firms cut pay in past two years but only 13% in past 3 months.
- 36% of companies say weaker Euro has helped but 23% say it hurt.
"It is very clear that the improvement is relatively modest and is not being seen across all companies or sectors. Of course, it would be very unusual for all businesses across the economy to see a turnaround at exactly the same time. So, it isn’t surprising that the survey suggests circumstances vary widely. In general however, it seems that healthier business conditions are beginning to take hold".
Mr. Austin Hughes, Chief Economist, KBC Bank Ireland commented: "While the survey takes a very different approach to official measures of growth, it has tracked GNP statistics fairly closely in recent years and points towards positive GNP growth when figures are published for the 2nd quarter of the year".
"Encouragingly, the survey also suggests activity should improve further in the second half of the year. However, the upswing isn’t seen as strong or wide enough as yet to prompt any turnaround in employment".
Mr. Hughes also suggested that: "The survey sheds some light on what has become a heated debate about whether the Irish economy is in recovery mode. The survey points towards a recovery but also explains why it may not feel like a recovery for many".
According to Mr. Hughes: "What is happening is a gradual easing in the negative factors that depressed activity and employment in recent years. So, the ‘feel bad’ factor is fading but the ‘feel good’ factor that we normally associate with economic upturns remains largely absent".
"A marked divergence between current tentative signs of improvement and memories of how strong growth was in the past is also colouring views as to when a broadly based full scale recovery might be seen".
According to Mr. Hughes: "While growth is rising, opinion is sharply divided as to how far we may be from a broadly based economic recovery in Ireland".
Roughly 1 in 5 companies think a recovery will be evident before the end of the year. The most widely held view is that it will become established in 2011. However, a significant number think it might be delayed until 2012 and almost 1 in 4 feel a recovery is more than two years away.
The survey also examined recent trends in pay and suggests that reductions in pay have been widespread across the Irish economy. Mr. O’Connor noted: "69% of firms saying they had cut pay in the past two years. There are signs these pressures have eased of late with only 13% of companies saying they cut pay in the past three months and 12% saying they planned further pay cuts this year".
The survey also had some slightly surprising findings in regard to currency movements. "While most economists feel a weaker Euro exchange rate is good for the Irish economy, the impact of currency weakness is not felt evenly across Irish business," said Mr. O’Connor.
He added "just over 40% of companies feel currency movements will not impact their business. While 36% of firms think a weaker Euro will help, as many as 23% regard it as a negative. Clearly that reflects higher costs of imported materials and products. So, the survey suggests the weaker Euro is something of a mixed blessing even if the overall economic impact is broadly positive".
