Will the heavens shine on Irish companies this summer, or are there more gloomy times ahead, asks Laura Slattery

LIKE AVERAGE temperatures, the value of the Iseq index has edged tentatively upwards in recent weeks, but this week's batch of statements from the managements of some of Ireland's biggest companies suggests the outlook for the months ahead is far from clear.

Eight public companies unleashed trading updates this week, while four big name companies published figures last week, and while the tone of the statements ranged from confidently bright to downright gloomy, one word that keeps recurring is "uncertain".

The economic environment in which these companies trade is as unpredictable as the weather.

Take this update, from Aer Lingus: "The economic outlook in the company's main markets remain uncertain due to a slowing global economy, the record price of fuel and the current weakness of the US dollar and sterling."

Substitute the word "oil" for "fuel" and the sentence could come from any number of major companies braving the currently murky market conditions, which are usually described as "challenging" or "testing".

The clouds, or the "headwinds", as market-watchers call them, include the collapse of the Irish housing market; sluggish consumer spending; unfavourable currency exchange rates; rocketing energy prices and the lengthening shadow cast by the credit crunch.

Last year's fashionable excuse for unexpected distortions in seasonal trading - the weather - has been replaced by this year's early Easter. The Iseq is dominated by financial stocks, and it was these banks' helpless capitulation to the global liquidity crisis that spurred the Iseq's downward spiral, as international investors took one look at anything Irish or property-exposed and yelled "sell, sell, sell".

Yesterday's statement from AIB was as sunny as might be expected. The bank said its "geographic diversity and strong customer franchises" would underpin its resilience in "the changed and very testing environment of difficult market conditions and slowing economies".

But loan growth is slowing, bad debt charges are rising, the strong euro is knocking 3 per cent off earnings, net interest margins will reduce by around 10 basis points. . .

The contents of the AIB statement may have been well-flagged to shareholders, but the numbers tell their own subdued story: earnings per share in the first half of 2008 is expected to be down 6 per cent on the same period in 2007.

Inconveniently for the likes of AIB, Bank of Ireland and Irish Life Permanent, which holds its agm next week, demand on the home front for mortgages is expected to contract again in 2008. The Irish Banking Federation's statistics on the mortgage market show a 20 per cent fall in the value of mortgage lending year-on-year in the first quarter, with the number of mortgages issued to first-time buyers drying up by a dramatic 45 per cent - "a very disappointing number", according to Davy banking analyst Scott Rankin.

Among the eight trading statements published this week, one of the most ominous to emerge has come from Aer Lingus, which faces "unprecedented" fuel costs and magnified seasonality, which will result in operating losses in the first half of 2008. Airline sector analysts are now anxiously waiting on Ryanair's full-year results, due to arrive on June 3rd.

Another company to adopt a negative tone is insulation and building materials group Kingspan: it's coping with lower demand from residential markets, increased raw material costs, adverse currency movements and short-term margin pressure from rising steel prices. Any shareholder who thought the worst was over should probably consider the cautionary note struck by analysts at NCB Stockbrokers, who believe there is "scope for deterioration" in several of Kingspan's markets, including that benchmark of glorious economic times - high-rise office construction.

Last week's first-quarter results from paper and packaging group Smurfit Kappa, which came below expectations, have probably sparked the most negative reaction from analysts, who cut ratings due to weakening European economic growth, cost pressures, dollar weakness and a range of other industry-specific problems.

But it would be wrong to lump all Irish stocks together, and this week has seen some buoyant performance updates from the likes of Paddy Power, which appears to be shrugging off the slowdown in UK consumer spending, and Tullow Oil, which is trumpeting "exceptional" results from its drilling in Ghana and Uganda and will benefit from the high oil and gas prices unloved by anyone outside the exploration business.

As in 2007, it is the food stocks that look like the best bet. Global food shortages mean commodity prices will remain high, so as long as food groups can pass on the higher costs in their consumer food divisions to retailers, they will be in a position to capitalise. Management at both Kerry and Glanbia were upbeat this week.

But the slowdown in UK consumer spending and difficulties in passing on costs have rattled some UK food groups, such as food-on-the-go retailer Greggs and MS ready-meals supplier Northern Foods, and next week's interim results from sandwich-maker and convenience food group Greencore will reveal the extent to which it is suffering.

The food stocks have not escaped the wider impact of the credit crunch. While the tightening credit conditions provoked by the subprime crisis have hurt margins at financial stocks, the ensuing credit squeeze has left any Irish stock hoping to grow through bolt-on deals snookered, with their access to finance blocked.

Overall, the value of the Iseq-listed companies has swelled by €8.2 billion since it sank to a trough on St Patrick's Day.

But the Iseq stocks are still worth a combined €41 billion less than they were at their closing price peak in February 2007, and the market is down 36 per cent on this peak. With the Irish economy "in a rather steep down-leg of an economic cycle", as Goodbody Stockbrokers economist Dermot O'Leary puts it, the clouds have not dissipated just yet.