Mon 13th Oct 2014
QES 2014 Quarter 3 Results
Laura Jackson, BDO Partner and NI Chamber Chief Executive, Ann McGregor
The latest Quarterly Economic Survey (QES) released Monday 13 October 2014 by Northern Ireland Chamber of Commerce and Industry (NI Chamber) in partnership with business advisors BDO reveals the Northern Ireland economy continues to show some signs of stabilization but no consistent pattern of growth. The recovery here still has some way to go.
The Quarter 3 survey for 2014, made up of responses from 350 local businesses, revealed that while there has been positives in the manufacturing sector, the services industry has shown signs of slowing up.
Overall more firms are reporting increased sales, exports and employment than those businesses reporting a fall in these key economic indicators. This would suggest some growth in the local economy although that growth seems to have largely slowed this quarter. This is also the case across the wider UK economy.
Specific findings relating to Quarter 3 of 2014 include:
Northern Ireland has been ‘holding its own’ in terms of its manufacturing export performance although the evidence would suggest that much of that is driven by a small number of large firms. Export growth among the smaller businesses appears much more uneven and this is evidenced by the findings from the QES.
More manufacturers are taking on staff and creating jobs that are full-time and permanent, a trend that has persisted in the QES over the last year. Manufacturers cash flow position is also showing some signs of improvement. The share of manufacturers operating at full capacity has increased to 47% this quarter, higher than the UK average (40%). Two years ago this figure was just 15%.
But there are challenges for the sector.
- Domestic sales and orders have weakened against what had been an improving position over the last year. This is also impacting on business confidence in the sector with fewer businesses this quarter believing that their turnover position will improve over the next year (from +48% in Quarter 2 2014 to +38% in Quarter 3 2014).
- Around two-thirds of the sector are experiencing recruitment difficulties largely for professional and managerial occupations (47%) followed by skilled manual employees (24%).
Northern Ireland’s service sector performance is a particular cause for concern and has shown consistent signs of slowing up since Quarter 4 2013. The service sector here currently ranks in the bottom 2 performing UK regions across all QES key economic indicators.
All service sector key balances have fallen in Quarter 3 2014 meaning that the gap between those reporting an increase in sales, turnover, employment and those reporting a decrease has narrowed.
- Fewer businesses have increased their workforce over the last 3 months (from +18% to +11%).
- A large fall in the balance of those service sector businesses expecting to expand their workforce over the next 3 months (the balance has fallen from +26% in Quarter 2 2014 to +4% in Quarter 3 2014).
- The service sector’s cash flow position is deteriorating and is now weakest of the UK regions (+1% NI vs. +22% for the UK).
- Fewer NI service sector businesses believe their turnover position will improve over the next year although this is the strongest balance across the service sector economic indicators (+43%).
This is a very different position to the findings from the UK QES where it is the manufacturing sector’s performance which is a greater cause for concern.
Wider Business Concerns
Competition remains the key concern for Northern Ireland’s businesses and with each quarter the competitive environment appears to get more and more challenging. Exchange rates are another growing concern with the strength of sterling still eroding any competitive advantage.
Around 3 in 4 businesses in Northern Ireland are concerned about the impact on their business of any potential interest rate hike and for around 20% of businesses this represents a very serious concern. Those sectors expressing the greatest concern are construction and retail/wholesale.
Around half of businesses believe that Northern Ireland households are more indebted than the rest of the UK and 40% believe businesses here are more indebted. This affirms the contention that any interest rate hike could more negatively impact on the Northern Ireland economy.
Real wages have been eroded significantly during this recession and this has been a drag on recovery. To get some sense of when real wages might recover in Northern Ireland, businesses were asked whether/if they had raised wages above inflation last year/this year. Just over one third of businesses gave above inflation (1.6%) pay rises in 2013/14 falling to just under one quarter of businesses which expect to do so in 2014/15.
Wage growth was strongest in manufacturing followed by professional services and lowest in construction.
However, around 40% of businesses are finding that they have to offer higher salary packages to attract new staff. This is highest in the manufacturing, professional services and construction sectors and lowest in retail/wholesale.
Half of businesses state that their long-term business strategy highlights the value of diversity in their management team. However, there is no strong sense of commitment to this. Again, this is less important to smaller businesses. There are no significant differences at a sectoral level although the commitment is slightly stronger in retail perhaps reflective of the fact that women make up half of the workforce in this sector. There are also more women employed in professional services in Northern Ireland than men.
Commenting on the survey findings NI Chamber Chief Executive Ann McGregor said:
“It is encouraging to see that all of the key economic indicators for Northern Ireland continue to be positive in this quarter’s QES. The economy is showing signs of stabilization but as yet there are no consistent signs of growth. In fact, many of the indicators have fallen since the last survey and indicate that the pace of growth has slowed. The recovery here still has some way to go.
“The most concerning results this quarter are for the services sector and the survey suggests that its performance has been weakening over the last year. There have been some positives around the manufacturing sector particularly in terms of taking on people and it is encouraging that export sales and orders have improved slightly. But the sector still faces challenges and this is reflected in the devastating announcement of the Gallaher closure last week. Overall the results show that the environment is still challenging for Northern Ireland businesses and the emphasis needs to be on helping business here stabilise and grow.”
BDO Partner Laura Jackson said:
“Our experience, working with businesses across a range of sectors, broadly reflects what the survey is telling us. While there is a degree of stabilization in some sectors, and an appetite for growth out there, we are not yet in the full throes of a sustainable all embracing economic recovery.
“The cost of doing business in Northern Ireland is a real concern, be that energy costs, salary costs or the real prospect of a rise in interest rates which in some cases is hampering future investment. These factors do introduce an uncertainty when local companies are planning for growth and we know from very recent experience that our less expensive neighbours across Europe are now our competitors when it comes to attracting investment and establishing a manufacturing base.We would like to see staff mentoring becoming an accepted norm within businesses. At BDO we know the value in real time ongoing mentoring, it increases staff morale and helps in retaining valued employees. The survey shows some progress made, but there is still a long way to go.”