Grant Thornton also warns of growing insolvencies amid widespread fears the current global challenges are not a ‘blip’
More than three-quarters of Irish businesses plan to increase their selling prices this year as companies struggle to offset rampant inflationary pressures, including energy and labour costs.
The stark warning about price rises that have yet to filter through to consumers and business is contained in a new report by professional services giant Grant Thornton.
A survey it carried out for its latest International Business Report found that inflationary pressures and market volatility had led to businesses feeling significantly less positive about the economic outlook for the year ahead, with optimism falling from 85pc in 2021 to 62pc.
The Grant Thornton report found that 77pc of Irish businesses plan to increase their prices in the coming 12 months. In January, the same report found 63pc planned to increase their prices in the year ahead, up from the 44pc who had reported increasing their selling prices in the first six months of 2021.
Speaking with the Sunday Independent, Michael McAteer, managing partner of Grant Thornton Ireland, said clients across all sectors were increasing their prices.
McAteer believes the energy price crisis, fuelled by Russia’s war in Ukraine, is now being viewed more as a longer-term issue than in March, meaning Irish businesses felt the need to up what they charge.
“When energy started to move, some businesses didn’t know whether this was a short-term blip or a long-term issue,” he said.
“I think a lot of businesses took the hit in the first four or five months because they didn’t want to increase their prices and then lose market share because their competitors didn’t move.
“I think where we are now is people realise the cost of living and the energy expense is a medium-term issue,” he added.
The report also foundthat 45pc of firmsfelt the availabilityof skilled labour was challenging
“It is not a blip, and therefore they can’t absorb the price increases any longer.”
The survey found 45pc of respondents felt inflation and its effect on overheads were having a negative impact on their businesses. Only the war in Ukraine was viewed as a more significant business challenge, with 52pc saying it had the greatest negative impact.
McAteer said he believed “all factors” pointed to an increase in insolvencies over the year.
On the mood surrounding investments, McAteer said there had been a pause in some sectors, particularly manufacturing. This was driven by the uncertainty about where spending would be in 12 months.
McAteer said there had also been a “plateau” in valuations around mergers and acquisitions. However, he added there is still a lot of private equity in the marketplace, which “always needs a home”.
“Prices have capped or are not rising at the rate they were previously, but we are not seeing a slowdown in deals. But, that’s a moment in time. If you are looking forward, and if the trend in our report continues and uncertainty continues with confidence falling, that will be the lead-lag factor. That will start to fall through.”
McAteer said if energy security concerns don’t worsen, he would be “quite optimistic” about getting through the year. However, he believed uncertainty would remain in 2023 as long as Russia’s war in Ukraine continued.
The report also found that 45pc of firms felt the availability of skilled labour was challenging. With rising wage demands, some 58pc reported labour costs as a constraint to growth – up from 27pc in the first half of 2021.
Despite some negative findings, business optimism here was ahead of many countries and regions. The UK survey reported 59pc of businesses felt optimistic about the economic outlook for the year ahead, while the EU average was 52pc.
Around a third of respondents also said they expect to increase global revenue, while a quarter plan to expand the number of countries they sell to.
The report surveyed 10,000 mid-market firms in 29 economies in the year's first half. Senior executives and business leaders in all sectors were interviewed.