Improvements in sentiment on ‘pause’ in second quarter

Irish companies reported "steady rather than spectacular" increases in activity in the second quarter, according to the latest business sentiment index from KBC Bank and Chartered Accountants Ireland.

Sentiment waned slightly compared to the previous quarter, which KBC Bank Ireland chief economist Austin Hughes said was disappointing but not surprising given the dramatic surge in sentiment in the second half of last year.

The survey points to “modest” gains in gross domestic product (GDP) throughout the rest of the year, with the pace of growth in the coming quarter likely to be marginally slower than before.

Step gains “These results point to step gains of late rather than any seismic change in activity levels. In turn, this reflects the reality of a recovery that is healthy but far from a return to the boom,” Mr Hughes said.

The index authors suggest the “pause” in business sentiment reflects Ireland’s need for a more balanced economic recovery, one in which consumer spending strengthens and “catches up” with confidence among companies.

Irish businesses are more confident than Irish consumers, recent patterns in sentiment surveys indicate, which may be because companies are reaping the benefits of less severe global economic conditions but consumers are not.

“There is little question that a business sector that is significantly exposed to external as well as domestic economic conditions should find life a little easier than a consumer who has experienced traumatic changes in incomes and employment prospects,” the survey report says.

Senior positions

The survey, conducted in mid-July and based on 397 responses, reflects the views of chartered accountants working in senior positions in Ireland’s leading companies.

Chartered Accountants Ireland chief executive Pat Costello said the steady increases in output should be seen as the continuation of healthy growth, rather than a pointer to weaker business conditions. "The survey signals that hiring is now at its strongest since mid-2007 and is particularly encouraging in this regard," he said.

Meanwhile, costs remain constrained. Only one in three firms reported rising costs in the past three months, while an even smaller number said they were increasing the prices of the goods and services they sell.

“With 70 per cent of companies reporting flat or falling selling prices, it seems a lack of pricing power is a key feature of the business environment. In turn, this means a low inflation environment is now deeply entrenched,” Mr Hughes noted.

The only notable exception to the trend for subdued costs was in the construction sector, where half of those surveyed indicated their costs had risen modestly in the past three months.