Tue 21st Apr 2015
QES 2015 Quarter 1 Results
Survey also reveals that majority of businesses in Northern Ireland are clearly against withdrawal from the EU
Recovery in the economy continues however the path to sustainable, long-term growth is “uneven and challenging” according to the latest Quarterly Economic Survey released today (21 April 2015) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO.
The survey, Northern Ireland’s largest private business survey, reveals that businesses have reported more positive balances in most areas for the first quarter of 2015 when compared to Q4 2014 – with quarter-on-quarter trends supporting NI Chamber’s view that the economy is recovering. More businesses have also reported an increase in domestic orders, recruitment intentions have improved and the manufacturing sector has performed particularly well over the past 3 months.
There are however concerns around the export sales and orders balances for the manufacturing sector and this is reflected in the wider UK survey where exchange rates have been identified as the biggest issue facing businesses nationally. When compared to other UK regions, the Northern Ireland services sector is also causing concern with the domestic sales balance deteriorating and becoming the weakest of all UK regions.
Specific findings relating to Quarter 1 of 2015 include:
There is a sense of positivity amongst manufacturers this quarter, with the majority of balances improving. Although almost all of Northern Ireland’s balances remain below the UK average, domestic sales have improved considerably (from +7% to +22%) and there are much stronger recruitment intentions around full-time employees. The cashflow balance has moved from negative to positive territory with more firms seeing their cashflow position improving (from -14% to +11%). Fewer manufacturers in Northern Ireland are feeling pressure to raise prices. Of concern this quarter for the manufacturing sector is the deterioration of the export balances and stagnation in the eurozone and its impact on the exchange rate is playing a big part in this trend.
All service balances are positive with more businesses reporting an increase than decrease in key indicators. The domestic sales balance has however deteriorated for the services sector this quarter (+18% to +4%) – making Northern Ireland’s domestic sales the weakest across all of the UK regions. The number of businesses employing more staff over the last 3 months weakened this quarter but looks positive for the next 3 months. The share of businesses trying to recruit has improved and is higher than the UK average. The cash flow position for the sector remains very challenging (NI +3% vs. UK +12%). There is some optimism though as order books look stronger for the next 3 months.
Competition remains the main business concern for local businesses. There has been a large rise in the amount of businesses who are concerned about exchange rates (39% in Q1 2015 vs 25% in Q4 2014). Concern over interest rates continue to diminish and the Bank of England’s recent decision to hold the interest rate at its 6-year low of 0.5% should continue to give businesses a degree of comfort.
The survey also revealed that costs are still rising for many businesses despite zero inflation. Only 10% of businesses say their business costs are falling and 1 in 2 manufacturers say that business costs continue to rise. The current low inflation/interest rate environment is providing some degree of confidence about investing in the business but there is still a large minority (40%) of businesses for which it does not.
Respondents were given the opportunity to provide suggestions for government interventions to support business growth. A variety of responses were provided, the most common of which related to taxes, particularly a reduction in the rate of Corporation Tax cited as the most important government intervention for 28% of businesses. This was followed by the need to reduce red tape/bureaucracy (9%), improve infrastructure/connectivity (7%) and invest/support for businesses in education/training/skills (7%).
The majority of businesses in Northern Ireland (67%) are clearly against withdrawal from the EU. Respondents stated that they are most in favour of remaining in the EU but with specific powers transferred back to Westminster (53%). Two-thirds of businesses believe that a referendum should take place, although the majority of these think this should only happen after UK negotiations have run their course.
Commenting on the survey, Ann McGregor, Chief Executive of NI Chamber, said:
“Whilst the Northern Ireland economy shows signs of strengthening, the latest figures are a reminder that the path to sustainable, long-term growth is uneven and challenging. Unless support for exports and business investment is placed at the heart of any future government, consumption and government spending will continue to drive an economic recovery that is unbalanced and unsustainable.
“Most of the key indicators reported improvements this quarter and are all positive and indicate growth. The manufacturing domestic balances increased but the export balances reported a fall this quarter reflecting the on-going challenges for local manufacturers dealing with a strong pound and weak EU marketplace. The service sector domestic sales balance fell and the cashflow position of the sector is weak but domestic orders have risen so hopefully sales will improve in Quarter 2.
“The passing of legislation to devolve Corporation Tax to Northern Ireland will help future business growth. We now need all of Northern Ireland’s political parties to set a ‘rate and date’ for the implementation of the new Corporation Tax rate.”
Commenting on Britain’s possible withdrawal from the EU, Ms. McGregor concluded: “The vast majority of businesses across the UK want to stay in the Single Market, but on the basis of a revised relationship with the EU that promotes trade and competitiveness. However the implications for Northern Ireland from a trade perspective are huge particularly in terms of the Republic of Ireland, our largest export partner. As a region Northern Ireland has potentially a lot to lose.”
Peter Burnside, Managing Partner at BDO said:
“BDO welcomes the latest findings from the QES survey which shows some increase in business optimism and confidence although Q1 results are difficult to use as a basis of long term conclusions.
“It is interesting to note that a large number of respondents feel confident in a backdrop of low interest rates and a low inflation environment to invest in their businesses with a growing number looking forward to increased sales, profitability and recruitment.”