Monday 20 November 2017

Sentiment points to surprise slowdown in growth

Austin Hughes, chief economist at KBC Bank Ireland
Austin Hughes, chief economist at KBC Bank Ireland
Colm Kelpie

Colm Kelpie

Sentiment among Irish businesses weakened in the second quarter amid global uncertainty and concerns about Greece.

The latest KBC Bank Ireland/Chartered Accountants Ireland business sentiment survey showed that although there was a further expansion in business activity in the past three months, there are hints that business conditions have not improved as much as had been expected.

And it comes as separate data shows that Europe is failing to shake off the threat of deflation, with prices falling in Sweden, flat-lining in Britain and barely registering any increase in Germany and Italy.

Adding to that, commodity prices, especially for oil, are falling amid a number of issues, including a slowdown in China.

Pat Costello, Chartered Accountants Ireland chief, said external issues are weighing on sentiment.

"Increased global uncertainty and particularly worrying headlines on Greece and China also seem to be injecting a little more caution into sentiment," Mr Costello said.

"Irish business is still moving solidly forward but the survey implies the steps are a little more careful of late."

The business sentiment index declined to 123.1 between April and June, from 127.7 in the previous quarter. But the survey, which is based on 309 completed responses, also shows jobs growth reaching its fastest pace in nine years, signalling the recovery remains solid.

The easing in the pace of output growth was primarily a reflection of responses from firms in construction and manufacturing.

The number of construction firms reporting stronger activity eased from just under 80pc to just over 55pc of responses. "Our judgement is that this doesn't imply weaker demand but instead reflects difficulties in smoothly scaling up the supply capacity of the industry," the report said.

"It may also owe something to uncertainty related to the potential impact on demand of new Central Bank regulations on borrowing."

Austin Hughes, the chief economist at KBC Bank Ireland, who carried out the analysis, said companies are also reporting increased pressure on pay and hiring costs. And he pointed to the fact that the vast majority of companies surveyed feel that a UK exit from the EU would have an adverse effect on the Irish economy.

"As many as 40pc of firms see a direct negative impact on their business in the event of 'Brexit' through a variety of channels with weaker activity because of elevated uncertainty, increased exchange rate volatility and a greater amount of 'red tape' all weighing on Irish business conditions," he said.

Meanwhile, inflation data out of Europe sparked concern and made for grim reading for those seeking to get inflation back up to the around 2pc yearly rate that many consider healthy.

Germany, Europe's economic engine, reported consumer prices harmonised to compare with other European countries were up just 0.1pc year-on-year and fell 0.2pc between May and June.

Italy fared slightly better, but still only saw prices rise 0.2pc.

Consumer prices in Britain, meanwhile, were unchanged in June from a year before, taking the inflation rate back to its lowest in more than half a century. Prices plunged in Sweden, falling at an annual rate of 0.4pc. (Additional reporting Reuters)

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business