Mon 12th Jan 2015
QES 2014 Quarter 4 Results
Northern Ireland’s economic recovery remains in positive territory for most key balances however caution still remains according the latest Quarterly Economic Survey released today (12 January 2015) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO.
The survey, made up of responses from over 300 local businesses, reveals that more businesses are reporting an increase in local sales, exports and employment for Quarter 4 of 2014 than those reporting a fall.
The survey revealed that export sales and orders appear to be strengthening for local businesses with improving investment intentions and the percentage of firms trying to recruit staff increasing.
However businesses in both the manufacturing and services sector appear less confident going into 2015 as firm’s forecast their performance for the year ahead. Profitability is a particular concern for manufacturers over the next 12 months.
Specific findings relating to Quarter 4 of 2014 include:
Despite an increase in export sales and orders, there are few signs of stability for Northern Ireland manufacturers with their domestic sales and orders falling and almost all balances for Northern Ireland below the UK average.
- Domestic sales & orders balances weakest across the 12 regions (NI sales +7% vs. UK 36%, NI orders +16% vs. UK 38%).
- Exports sales balance on a par with UK average (+26%).
- Employment balances down, particularly around expectations to increase workforce over next 3 months (+10% Quarter 4 vs. +31% Quarter 3).
- The percentage of firms trying to recruit has increased from 73% to 76% in Quarter 4. However Northern Ireland stands out particularly from the rest of the UK regions in terms of the extent of recruitment of part-time staff – another indicator of the challenges facing the sector.
- Cashflow balance negative this quarter and lowest across UK regions (NI -14% vs. UK +15%). This means that more businesses in NI reported that their cashflow position worsened during the last 3 months than those reporting any improvement.
- Confidence levels still challenging particularly around improvements in profitability over the next year (NI +8% vs. UK +45%).
- NI is one of only two UK regions where more manufacturers are expecting to reduce prices than raise them (NI -9% vs. UK +21%).
The survey reveals some improvements in services but challenges remain as Northern Ireland ranks among the bottom 2 UK regions for all key balances and is the bottom ranking region for 5 key balances (domestic sales, export orders, employment last 3 months, confidence turnover and confidence profitability).
- Domestic sales balance has remained at the same level as Quarter 3 however domestic orders has decreased (+11% Quarter 4 vs. +14% Quarter 3).
- Employment balances have improved (last 3 months +18% Quarter 4 vs. +7% Quarter 3, next 3 months +9% Quarter 4 vs. +4% Quarter 3).
- Cash flow position remains very challenging.
- Business confidence is deteriorating and Northern Ireland is the weakest of UK regions (turnover confidence NI +38% vs. UK +60%).
- Fewer businesses believe their turnover position will improve over the next 12 months (+38% Quarter 4 vs. +43% Quarter 3).
Competition remains the key concern for Northern Ireland’s businesses and with each quarter the competitive environment appears to get more and more challenging. Concern over exchange rates has also increased this quarter with the strength of sterling continuing to erode business competitiveness. Consistent with the UK results, there has been a large fall back in concern over interest rates as low inflation and uncertainty around global prospects mean that any decision to raise interest rates is no longer imminent. Concern over business rates has increased from 19% in Quarter 3 to 23% in Quarter 4.
Business infrastructure costs
The survey also asked a number of questions around Northern Ireland’s infrastructure including its impact on the cost of doing business.
The survey revealed energy costs as being the most burdensome on business with more than three-fifths of businesses (62%) citing power and heating costs as being costly. This was followed by telecoms, which 37% of businesses believed to be costly. 30% of businesses also cited international transport links as burdensome to business with local transport links proving costly for 29% of companies.
Respondents also claimed that energy costs are a potential deterrent to future investment decisions (29%), followed by telecoms (15%) and international transport links (15%).
When asked what one key action the Northern Ireland Executive could take to improve infrastructure in Northern Ireland, energy costs and the transport infrastructure dominate. 28% of businesses believe that greater investment in transport infrastructure is required and similarly 28% believe that reduced energy costs and an improved regulatory framework will improve business conditions. Improved broadband coverage was cited as the most important action by 11% of respondents.
Whilst 2014 was largely viewed as a better year for the local economy, the QES suggests that the business environment in Northern Ireland is still very challenging. Over the last year more key balances have fallen that improved in both manufacturing and services but particularly for manufacturing. There has been a marked deterioration in the domestic sales and orders balances for both sectors. Cashflow is a very real concern and has shown no improvement over the year.
Commenting on the survey, Ann McGregor, Chief Executive of NI Chamber, said:
“The most encouraging aspects of the results in Quarter 4 for Northern Ireland are the increases in the export balances particularly for manufacturers. While they are still too low, they represent a strong improvement on the last quarter, when some of the balances were close to negative territory.
“The employment balances were mixed. Service sector firms increased their staff over the past three months although largely with part-time staff reflecting some seasonality in the figures. However, there was a fall in the manufacturing employment balance suggesting fewer manufacturers have tried to recruit.
“Manufacturers’ also recorded a fall in the number who expect to take on new staff in the next quarter. The domestic market indicators also presented a mixed picture. Overall, the results point to continued unevenness in both manufacturing and services recoveries.
“Critical to private sector growth and economic recovery in 2015 is having the infrastructure and skills to allow businesses to develop and flourish. As the survey shows, energy costs are a big burden on business. We know business energy costs in Northern Ireland are higher than the rest of the UK and for some of our businesses they are amongst the highest in Europe. This is a real challenge to our competitiveness and needs both government and the private sector to work together to address. We welcome the Utility Regulator’s review of gas and electricity tariffs and hope to see prices fall later this year.”
Francis Martin, Partner, at BDO said:
“The survey, overall, gives both reasons to be encouraged and for concern. The results reflect, however, what we are hearing on the ground from our clients, our contacts and our networks. They demonstrate that, if the Northern Ireland economy is to grow, it must make itself fit for growth. That involves changes in a number of areas.
“Firstly, businesses need to develop robust plans for growth, tackle inefficiencies within their operations, put in place the right people and systems and drive forward with a clear focus on market opportunities.
“In tandem, the Executive continues to have a vital role to play in bringing change. They have got to maintain and improve infrastructure, bring through the legislation for the devolution of Corporation Tax and address the high costs of doing business in Northern Ireland, particularly energy and transport.
“If all these changes happen, I am confident that we will start to see more positive results from the Quarterly Survey during 2015 and beyond.”
The survey also highlights how Northern Ireland remains a lagging region in comparison to the rest of the UK. A recent survey by the British Chambers of Commerce (BCC) suggests that the wider UK recovery is on a much firmer footing than Northern Ireland’s.
For further information please contact:
Christopher Morrow, Communications & Policy Manager
Northern Ireland Chamber of Commerce and Industry
Tel: 02890 244113 / 07808789163