Tue 7th Jan 2014
NI Chamber Quarterly Economic Survey: Recovery persists with business growth expected for 2014
The latest Quarterly Economic Survey (QES) released today (Tuesday 7 January 2014) by Northern Ireland Chamber of Commerce in partnership with business advisors BDO reveals that Northern Ireland’s economic recovery persists but still remains patchy and shows slower signs of recovery compared to the rest of the UK.
The Quarter 4 survey for 2013, made up of responses from 350 local businesses, revealed that almost all key balances remain positive with many showing a continued sign of improvement, particularly in manufacturing.
The survey also revealed that business prospects for 2014 are generally positive with three quarters of local businesses expecting growth during 2014, albeit modest for the majority. One in ten businesses are more pessimistic and anticipate their business prospects will deteriorate in the coming year.
The survey revealed that almost three quarters (73%) of local business envisage they will target new markets in 2014, 62% intend to make new investment in their product and 52% are planning on recruiting more staff (although this means that 48% are not intending to recruit).
Specific findings relating to Quarter 4 of 2013 include:
Manufacturing business confidence and investment intentions continue to strengthen. The improvement in business confidence particularly stands out this quarter with turnover at +61% (an increase of 7% points from previous quarter) and profitability at +44% (an increase of +10% points). There is also continued improvement in investment intentions, especially in terms of plant and machinery.
However there are challenges:
- Export sales and order balances have improved over the quarter although remain low (export sales +14% and orders +12%).
- Around half of manufacturers are experiencing recruitment difficulties, particularly in relation to skilled manual workers.
- Cash flow has become a particular problem for local manufacturers this quarter (-12%), meaning that more companies are reporting a deterioration in their cashflow position than are recording an improvement.
- There has been a large increase in the prices balance (+38% from +25% in previous quarter). This means that more businesses are expecting the price of their goods to rise. Increasing raw material prices was cited as the biggest driver of this.
When compared to the rest of the UK, Northern Ireland’s export orders are the weakest of all UK regions alongside Wales. In terms of cash flow, the only other regions to have negative balances were Scotland (-24%) and London (-1%). The percentage of local businesses under pressure to raise prices is now the third highest of the UK regions.
Momentum in the service sector recovery continues:
- Domestic sales balances have increased from +20% in the previous quarter to +34%. Orders have also increased from +17% in the previous quarter to +32%, revealing a significant increase meaning the services sector order book is now stronger than the manufacturing sector.
- The sector’s cash flow position has also improved from +5% in the previous quarter to 24% and businesses are not feeling under the same pressure to raise prices.
- The recruitment balance in the last 3 months was low but there were signs of improvement in recruitment intentions. This appears to have translated into actual jobs this quarter with the employment balance for the last quarter up from +7% to +40% – an almost six-fold increase. Seasonal recruitment is likely to have played part in this.
- However, recruitment intentions over the next 3 months remain strong (up from +28% to +39%).
Northern Ireland’s domestic orders now on a par with the UK average (32%). Employment balances are very strong this quarter, the second highest of UK regions after London and Northern Ireland’s recruitment intentions is the highest of all UK regions having been the lowest in the previous quarter. Confidence, in terms of turnover and profitability, is still lagging behind the UK particularly in terms of profitability – lowest of the UK regions after Scotland.
The survey revealed that local businesses are still having recruitment difficulties although this has started to stabilise. 50% of manufacturers in Northern Ireland have experienced difficulties (national 81%) with 38% of local service based companies having difficulties (national 60%). These are however much lower than the UK average.
Business and banks relationship
Local businesses were also asked to rate satisfaction with their main bank. This revealed that many more businesses are satisfied with their banking relationship than dissatisfied – 49% are positive compared to 19% who are negative. The area where businesses were most negative in relation to their main bank was in its responsiveness to business banking needs, with this being cited as an issue by almost one quarter of businesses. 55% of businesses claimed to know their Banking Relationship Manager with 21% claiming they do not know.
Business costs and inflation
Two issues have become more of a concern to businesses over this quarter: interest rates (up from 15% to 22%) and inflation (up from 17% to 21%). The survey also asked the Northern Ireland business community whether their business costs had risen or decreased above the UK inflation rate which stood at +2.7% during the period of the survey (December 2013). Over half (53%) stated that their business costs had risen above this rate in the last year, 36% said their costs had increased at the same rate and 9% indicated their costs had decreased below this rate. Only 3% stated their costs had decreased. Only 4% indicated they were able to pass on all cost increases, just over a third (35%) said they were able to pass on some of the costs but not all, with 61% were unable to pass on any increase.
Commenting on the survey, Ann McGregor MBE, Chief Executive of Northern Ireland Chamber of Commerce, said:
“According to the latest survey results the economic recovery gathered pace in Northern Ireland over the past three months. Yet again most of the main balance figures increased on the previous quarter and businesses are generally more confident about the future. We are especially happy that our members’ business prospects for 2014 are generally positive.
“We are especially delighted to see that three quarters of businesses envisage that they will target new markets in 2014. NI Chamber of Commerce will continue to focus on inspiring export and we will be launching a new UKTI supported initiative with the world-wide Chamber network to support trade in 2014.
“We will also be prioritising access to finance and pursuing the devolution of Corporation Tax to Northern Ireland following the Scottish Referendum.”
Francis Martin, Partner at BDO, said:
“This is a great start to the New Year with a largely positive quarterly survey. Confidence is definitely improving and businesses are resolute in their determination to take the recovery from being good to being truly great.
“Our experience at BDO with our own clients matches many of the concerns highlighted in the survey however; ongoing recruitment issues and potential skills gap, the increasing pressure on businesses to raise prices and fundamental cash flow issues continue to be a concern and a barrier to growth.
“The survey points towards Northern Ireland continuing to lag behind the rest of the UK in terms of our recovery path. The NI business community, our banks and the government must continue to work together to address this issues. We must make sure that we do all we can to give our companies the opportunity to get the finance they need in order to go out and trade across the world if we are to succeed in rebalancing the economy towards continued growth.”
Pictured at the Quarterly Economic Survey briefing are (L-R) Maureen O’Reilly, who undertook the economic analysis for the survey; Francis Martin, Partner at BDO and Ann McGregor, Chief Executive at NI Chamber of Commerce.
The below video also features an overview of the survey: